The impact of falling oil prices isn’t contained to just the oil industry and also the steel pipe industry. Some experts think the price of oil will remain low for some time and will affect the demand of steel pipe, especially stainless steel pipe.
Steel Companies, Next Victim?
Manufacturers are bracing for impact as plunging crude oil prices force energy producers to cancel or postpone new drilling projects. No industry operates in a vacuum. The impact of falling oil prices isn’t contained to just the oil industry, also the steel industry.
After reaching historic levels in the past few years, growth in U.S. oil production is beginning to taper off due to rapidly falling prices. Lower oil prices have decreased demand for pipes, tubes and other energy-related steel products. Northeast Ohio was worrying about the rebirth of its steel industry partly because steel prices have dropped significantly since 2014.
Even though stronger demand from the construction and manufacturing sectors, declining demand of the energy sector and a recent surge in imports still gloomy the future of the steel pipe industry. Prices for hot rolled coil are down, as is demand for sheet steel and bars for seamless pipe. Steel is faring better than other metals, like copper and aluminum, which have seen great changes in commodity prices since the oil bubble burst. But major steel pipe producers are already feeling the effects. Some leading manufacturer United States Steel Corporation announced it would lay off more workers in which produces steel pipes and tubes for the oil and gas industry.
The Oil Price
Much more steel workers are out of work than a year before. What cause this thing happened? We have to admit that it is the price of oil. Oil was selling for more than $100 a barrel in 2011, and drillers were scrambling to get to it, whether it was trapped in the tar sands of Canada, the shale plays of the Dakotas or just about anywhere else below ground or water. Recently, oil is worth half that and has been trading at or below $50 a barrel. As a result, the number of rigs drilling in the United States which finally causes the demand of steel pipe declines. It’s one of the worst oil-price crashes in history, say economists.
While demand from the energy sector is declining, a rash of imported steel is flooding the U.S. market, particularly from China. Oversupply in the industry has put pressure on steel prices as Chinese steel production has outpaced demand. The low costs of production in China enable the local producers to sell their product at cheaper rates, leading to an industry-wide price decline, hurting margins and earnings power of U.S. steel makers in the process. U.S. Steel has also been rattled by surging inflow of imported oil country tubular goods products into the American market in recent years. What’s more, an appreciating U.S. dollar has bolstered the purchasing power of domestic buyers sourcing foreign-made goods. Chinese steel imports are also cheaper than their U.S. counterparts, further boosting their appeal in the eyes of U.S. buyers. Domestic steelmakers has suffered heavily due to a surge of cheap steel imports, reflected by declined orders, idling of mills and jobs losses.
A Challenging Time
For some companies who are being tied to just one market could prove damaging for some businesses. For metal fabricators who have the ability to diversify their markets and interests, now is the time to explore a greater variety of business partners, thus mitigating the negative impact of the low oil price. Some experts have said that it is exactly the right time for some companies to pursue or further existing relationships with automakers, as they make the most value-added steel. Overall, I have to say that the industry outlook is positive. While this could be a challenging time for some metal fabricators, it isn’t likely to cause serious harm to the industry as a whole.
Steel Pipe Price
However, steel pipe prices are not much impacted by crude prices. The factors affecting steel pipe prices are cost of raw materials (Iron ore, coking coal, limestone, alloying elements etc.), fixed costs, manpower productivity, world capacity (China in particular), exchange rate etc. In fact, coking coal price impacts steel prices the most. Due to overcapacity in China, steel prices everywhere have fallen and steel industry in both developed and developing countries is finding it hard to survive the Chinese onslaught. Crude price at best can affect the cost of power used in production of steel if the power source is dependent on liquid fuel. In most of the cases, power production in steel plant is done using gases generated during the iron & steel making process and thus, there is limited use of oil even in this scenario.
The US is the world’s biggest importer of steel, purchasing 35m ton of raw material in 2017 of which 6.6m ton came from South Korea, Japan, China and India. But Donald Trump on Thursday rolled out his new tariffs on steel and aluminum.
Trump’s announcement on tariffs underlined concerns about rising U.S. protectionism, which has sparked bouts of turmoil in global financial markets as investors feared a damaging trade spat would shatter a synchronized uptick in world growth. Both stock markets and economists tend to loathe tariffs, which hamper the basic efficiency of the market, rarely accomplishing more than saving a few jobs in exchange for higher prices across the entire economy. Stocks sank sharply after his remarks, as investors, already nervous about rising inflation and interest rates, began to worry that tariffs would push up prices of goods and lead to tit-for-tat measures from China and others. The Dow Jones industrial average ended down 420 points.
Is it a good news for steel pipe suppliers or consumers who purchase steel pipe or things like that?