Global Seamless Octg Market

The global seamless OCTG market outlook
James Ley Senior Consultant

HATCH IRON & STEEL CONSULTING
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Contents
Hatch Consulting
The global seamless OCTG market in 2009
Will Chinese over-supply continue?
Can the MENA market replace the US market as the market of choice for Chinese
exporters?
Outlook for the market and potential opportunities for American exporters
THE GLOBAL SEAMLESS OCTG MARKET
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Our organisation
Hatch supplies business, process and technology consulting, design and engineering
and construction, operations and project management to the mining and metals, energy and
infrastructure industries worldwide
Established 1955 and employee owned
8000 highly skilled people serving clients worldwide
US$16BN of projects now under management in 60 countries
Our values
Safety
Quality
Innovation
Sustainable development
Effective risk management
We deliver unprecedented and sustained results for our clients
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Hatch Consulting is the worlds leading management consultancy specialising in the
mining and metals industries and provides high level support services, ranging from
corporate and business strategy development through strategic market studies to
implementation of new technologies, management and operating practices
Hatch Consulting is organised into specialised practices by industry and service, combining
to provide precise solutions, expertly delivered to the exact needs of each individual client
Hatch Iron and Steel Consulting is the strategy and market development practice,
specialising in steel and raw materials, and providing strategy development and
implementation services
Investment and Business Planning (IBP) provides economic, environmental and
technical evaluations of minerals properties and processing facilities, due diligence, pre-
feasibility and feasibility studies and related investment planning and appraisal services
Hatch Corporate Finance a FSA-regulated joint venture company, provides corporate
financial advisory and transaction execution services
Hatch Consulting is the leading management consultancy dedicated
to the mining and metals industries
HATCH CONSULTING
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Global reach and resources
8000 staff- February 2010
Hatch Associates Limited, 2010 5
8000 staff February 2010
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Contents
Hatch Consulting
exporters?
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Global seamless OCTG production spiked in 2008 but dropped into 2009 as
demand fell
2000
4000
6000
8000
10000
12000
14000
16000
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China ROW North America
Global seamless OCTG production (kt)
Source: various and Hatch estimates
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North America China MENA
CIS/Russia Others
Global seamless OCTG consumption (kt)
Rising Chinese
production pushed
OCTG production
beyond 12Mt in 2008
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China now dominates seamless OCTG production - The Americas, Europe and
Japan are the leaders in proprietary & premium connection production
Text
Global seamless OCTG production showing leading producers by continent
Source: Hatch
0-1Mt
1-2Mt
2-3Mt
Over 3Mt
Total global seamless OCTG production 2009 = 9.9Mt
Key
Established
manufacture of
proprietary grades &
premium
connections
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Despite the downturn, the USA remains the largest consumer of seamless OCTG
in the world; China has emerged as the second major consuming market,
followed by Russia and MENA
Text
Global seamless OCTG consumption shown by region (Mt)
Source: Hatch
0-0.5Mt
1-2Mt
2-3Mt
Over 3Mt
0.5 - 1Mt
Key
Major consuming countries
Total global seamless OCTG consumption in 2009 = 9.4Mt
The four major OCTG
markets account for
85% of global
demand
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By 2008 Chinese seamless OCTG production significantly exceeded demand.
In 2009 following the trade case filed in the US OCTG exports from China
dropped significantly
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1999 2001 2003 2005 2007 2009
Seamless OCTG Production
Seamless OCTG Consumption
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2003 2004 2005 2006 2007 2008 2009
Seamless Drill Pipe 168.3mm
Seamless Casing and Tubing
Chinese seamless OCTG production and consumption
Chinese seamless OCTG exports (kt)
Source: Company interview, Chinese Steel Pipe and Tube Council and Hatch estimates
Exports dropped
from 3.3Mt in 2008
to 1.9Mt in 2009
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The drop of exports from China in 2009 coincided with the global slow down
and the opportunity for China to export OCTG was significantly limited
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
2008 2009
Europe CIS
Middle East Africa
Asia South America
USA Other North America
Chinese seamless OCTG exports by region 2008 and 2009 (Mt)
1.20Mt 1.43Mt Other
countries
1.9Mt 3.3Mt Total
733kt 1.89Mt USA
2009 2008
Source: ISSB, Steelfacts and Hatch
Algeria (up 86kt), Iran (up 25kt), and Indonesia (up 34kt)
were the major countries to see an increase of Chinese
OCTG imports in 2009 vs 2008
Outside of North America and MENA, the worlds other major
OCTG market, Russia, showed a significant decline in
Chinese seamless OCTG imports in 2009 vs 2008 (down
80kt)
The Russian market is not driven by stockists but is
controlled by end-users such as Gazprom
The market is also unattractive for Chinese exporters as
import duties of 15% are in place for seamless OCTG
-1.4Mt
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Domestic seamless pipe consumption increased sharply in China in 2009,
suggesting a shift in product mix by local mills from OCTG to Industrial pipe
0
5
10
15
20
25
2008 2009
Seamless pipe production Seamless pipe consumption
Chinese seamless pipe production and consumption in
2008 and 2009 (Mt)
Source: China Steel Pipe and Tube Council and Hatch
0
1
2
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4
5
6
7
8
2008 2009
Chinese seamless OCTG exports
Chinese seamless OCTG consumption
Chinese seamless OCTG consumption and
exports (Mt)
+ 5Mt
3.4
2.6
19
14
3.3
1.9
- 2.2Mt
Red italic = estimate
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Of the four major OCTG consuming markets, MENA is the one market where
collective anti-dumping duties/import taxes are not in place on Chinese OCTG
casing and tubing
Algeria Libya
Egypt
Saudi Arabia
Iraq
Iran
Syria
Yemen
M
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c
o 4
8
9
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t
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4
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1
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9
5
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2
2
8
k
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3
8
k
t
Total market size = 1.57 Mt
15kt
2kt
Seamless OCTG consumption in MENA in 2008
Source: various and Hatch
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However, the MENA market is not controlled by stockists, but rather NOCs
which make it difficult for China to quickly penetrate these markets
Overview of leading end-users of seamless OCTG products in the
MENA region
Identified Super Majors/IOCs also of
importance:
End-use demand for OCTG in the MENA
market is dominated by National Oil
Companies (NOCs) such as Saudi
Aramco, ADNOC, KOC and Sonatrach
OCTG manufactures must go through an
approval process in order to be able to
supply to these NOCs
In certain cases this approval
process can take several months
For many of the MENA countries it will
also be difficult for new mills to penetrate
the proprietary/premium connection
market that Tenaris, Sumitomo and
Vallourec dominate
As a result, Chinese OCTG can not
instantly flood the MENA markets
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The MENA market will also use premium connections on some simple API
grades of OCTG restricting the access of non-premium connection imports
Seamless OCTG used in MENA requires just
under 30% premium connections
For many MENA countries, premium connections
are used extensively on simple grades such as
API group 2
Proprietary grades account for 7% of the market
demand in 2009
North African countries like Algeria, more reliant
on API group 1, have seen a rise in commodity
imports from China in 2009
The GCC countries and Iran which are more
exposed to higher API grades than Algeria
heavily rely on premium connections
It remains difficult for a number of Chinese
mills to increase their presence here
Premium
connection
28%
API
connection
72%
Use of premium connections in the MENA market in 2009
Source: Hatch
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Rig count numbers have begun rising sharply since July 2009 and long-term oil
prices suggest $100/barrel will be breached again towards the end of the decade
0
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2500
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3500
4000
4500
5000
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Latin America Europe
Africa Middle East
Far East Canada
U.S. Russia and Caspian
Worldwide rig counts Jan 07 Mar 2010
Source: Baker Hughes, Mi Swaco, EIA and Hatch
A further 1000
rigs have
entered the
market since
May 2009
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50
60
70
80
90
100
110
120
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3.5
4
4.5
5
5.5
6
6.5
7
(LHS) Crude Oil Price ($/barrel)
(RHS) Henry Hub gas price ($/million Btu)
Forecast oil and gas prices to 2020
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This supports a forecast strengthening demand for seamless OCTG, with
China expected to be the largest market by 2018 surpassing the USA
2000
4000
6000
8000
10000
12000
14000
16000
18000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
North America South America China EU MENA CIS India SE Asia Others
Forecast global seamless OCTG demand (kt)
CAGR = 2.29%
Source: Hatch offices worldwide
By 2018, China is forecast to have
a 35% share of the market with
North America having 25%
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Chinese mills are likely to increase their production mixs away from the OCTG
market. With a weakening dollar, US mills could look to the export market
The MENA market can not absorb seamless OCTG from
China that was initially targeted for the USA
It will take Chinese mills a number of years to build up
any sizeable market share in many MENA countries
With the US and Russia unavailable for Chinese
seamless OCTG exports, Chinese s mills will have to
continue to shift production from OCTG to markets such
as the industrial sector
US OCTG mills are likely to see a continued improving
market in 2010/11 as domestic drilling demand rises on
the back of the gas shale's and competition from imports
is reduced
Latin American markets such as Brazil, coupled with
markets in Western Africa and MENA could offer long-
term export potential for US OCTG producers, particularly
as the dollar weakens against other currencies
Having premium connections and proprietary grades
is likely to improve market penetration for American
mills in a number of countries
1.2
1.25
1.3
1.35
1.4
1.45
1.5
Sep
08
Oct
08
Nov
08
Dec
08
Jan
09
Feb
09
Mar
09
Apr
09
May
09
Jun
09
Source: Oanda and Hatch
US dollar to Euro exchange rate
The US dollar has
been weakening
against the Euro
since Feb 09
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Thank you for your attention. For further information on our pipe and tube
consulting please contact:
James Ley
Hatch Iron & Steel Consulting
9
th
Floor, Portland House,
Bressenden Place, London,
SW1E 5BH, UK
+44 (0) 20 7906 5127
jley@hatch-europe.com
Roman Filimonov
9th Floor, Portland House,
Bressenden Place, London, SW1E
5BH, UK
+ 44 (0) 20 7906 5129
rfilimonov@hatch-europe.com
Lynn Lupori-Gray
1600 West Carson Street, Gateway
View Plaza, Pittsburgh, PA 15219,
USA
+ 1 412 497 2067
llupori-gray@hatch.ca
Terance Ko
Room 1108-09, Tower W1,
Oriental Plaza, Beijing, 100738,
China
+ 86 10 8500 2180
tko@hatch.com.cn

Global Seamless Octg Market

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The global seamless OCTG market outlook

James Ley Senior Consultant

THE GLOBAL SEAMLESS OCTG MARKET

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