US line pipe prices jump; Section 232 threat chills import OCTG market
US domestic line pipe prices surged, and oil country tubular goods (OCTG) also rose after the Commerce Department outlined potential Section 232 remedies that threatened to make importation impractical.
Commerce Secretary Wilbur Ross’ proposals, revealed on Friday February 16, caused an immediate suspension of offers from South Korean mills and even some domestic mills while they assessed the impact of a potential stew of quotas and tariffs, according to market participants.
Foreign mills still are not quoting for the US market because prices set for transactions now potentially could be subject to a Section 232 tariff by the time the shipments arrive at American shores and clear Customs. Even orders already en route could be canceled if President Donald Trump acts quickly to impose an action or makes it retroactive, trading sources said.
“The business has stopped,” one trader said. “The steel traders are walking zombies right now.”
As a result of the potentially dramatic shift in steel sourcing foreshadowed in the Section 232 report, prices for all 10 categories of OCTG and all three grades of US domestic line pipe assessed by American Metal Market rose in February.
American Metal Market’s pricing assessment for US domestic X52 line pipe leaped to a range of $1,175-1,210 per ton, fob mill, on February 27 from $1,100-1,125 per ton in January.
Among the OCTG items, US domestic seamless high-collapse P110 casing climbed the most in American Metals Market’s latest pricing assessment, achieving a range of $1,400-1,500 per ton, fob mill, from the January range of $1,300-1,350 per ton.
Buyers said overseas mills have notified them they are suspending offers until Trump’s Section 232 action is known. The president faces an April 11 deadline to announce his remedy.
“The Koreans are not quoting at all,” a southern distributor said. “Some domestic mills are not quoting outside of current steel deliveries.”
Domestic mill sources confirmed a pause in offers. Electric-resistance-welded mills are assessing their hot-rolled-coil availability and cost. Seamless mills that import billet must determine whether their sourcing will be disrupted.
Some OCTG traders are trying to work out arrangements with overseas mills to continue importing material - but with a novel price-risk-management pact.
“It would be a sort of cost-sharing [scenario] where they would take half and we would take half” of the risk, a second trader said. “But right now it’s just an idea.”
Before quoting was suspended from South Korea and transactions effectively froze, American Metal Market’s pricing assessment for US import seamless high-collapse P110 casing jumped to a range of $1,275-1,300 per ton, cif Port of Houston, from the January level of $1,200-1,275 per ton.
American Metal Market’s pricing assessment for US import X52 line pipe was unchanged at $900-930 per ton, cif port of Houston, after making its big jump in January while various trade cases and a looming deadline for the Section 232 report began affecting the South Korean supply outlook, market participants said.
Some US mills announced price increases of $100-125 per ton on OCTG and $50 per ton on line pipe in the first half of February.
Domestic OCTG prices would be even higher except that inventories are sufficient to serve customers for the moment, the first trading source said. The domestic mills have ramped up production, and South Korean material poured into the United States in the second half of 2017.
“A lot of Taiwanese steel came in unsold,” the first trader said.
The domestic mills will get their full price increases soon, both traders said.
“There is still enough stock in the system, and people are still willing to move it for cash flow,” the second trader said. “That’s holding the price down. But the replacement cost is going to be higher.”
The various Section 232 proposals from Ross ultimately will be bullish for the domestic tube and pipe mills, but at the moment the proposed quotas and tariffs have taken a healthy energy-tubulars market and injected paralysis and confusion, according to market participants.
“The only people really making money are the domestic coil producers,” the second trader said.
“Wilbur Ross should have been recused from this,” the first trader said. “He was on the board of ArcelorMittal. He owned [domestic] steel companies. He was totally biased.”
The Trump administration continues to send mixed signals to the market as to whether it prefers global barriers or remedies that target imports from bad-actor countries. The southern distributor said the US Defense Department probably doesn’t want the Section 232 to target US allies, and national security is the legal basis for the Section 232 to begin with.
“They said they wanted to ‘do something surgical.’ Well, there is absolutely nothing surgical about the solutions that Secretary Ross provided,” the southern distributor said. “You have no idea what [Trump] is going to do.”
That distributor questioned the idea that there would be enough line pipe available domestically under a Section 232 scenario resembling any of the Ross proposals, including the across-the-board quotas that would reduce imports not only of line pipe but also OCTG. Some domestic mills would switch to OCTG production, because that usually has a wider profit margin.
“What would you do if the Korean OCTG is reduced? Historically a couple of these players have switched over to OCTG and foregone the production of line pipe,” the southern distributor said.