2018 Q4 Supply Market Outlook

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Harleysville, PA, November 21, 2018 – Global supply chains continue to remain volatile through Q4 2018. Section 232 quotas on South Korea steel exports has shifted steel and pipe production to the Middle East. While ASEAN countries can continue to export with the 25% tariff, we have not seen competitive numbers since Section 232 tariffs were implemented.

While imported steel pricing remains steady, domestic steel has begun to soften. Through 2018, we saw a 55% increase in hot rolled coil (used to make welded pipe). We are now seeing steelmakers slightly reduce the cost of steel due to increasing domestic inventories and softer demand.

We expect supply chains to remain volatile through mid-2019. The International Trade Commission continues to aggressively target AD/CVDs and most recently anti-circumvention cases from off-shore manufacturers.

Section 301 of the Trade Act of 1974 targets China’s acts, policies and practices related to technology transfer, intellectual property and innovation. The first action taken under Section 301 was $50B of China exports into the US were imposed with a 25% tariff. The second action tariffed another ~$200B at 10% increasing to 25% by year’s end if there is no new trade deal struck between the US and China. The US trade deficit with China sits near $347B.

Category price and lead time update:

      • Domestic A53B GrB, A53F GrA & A135/A795 Pipe – Price to remain flat or soften mildly though 2019 Q1. Lead times are extremely short. Most pipe mills have ample stock on the ground.
      • Import A53B GrB – Importers are hesitant to build off-shore A53B inventories while the import/domestic cost delta remains below 10%. We do not see import A53B as a significant cost savings opportunity through at least 2019 Q2.
      • Domestic Weld Fittings & Flanges – After Weldbend’s 7.3% increase on fittings and flanges in Q2, Weldbend imposed an additional 4.5% increase on flanges in June. We have seen some weld fitting manufacturers attempt to push another 7% increase though but the market has not yet adopted this increase. Lead times continue at three weeks for commodity material.

      • Import Weld Fitting & Flanges – In 08/2017, Tube Forgings of America and Hackney Ladish filed a request for investigation citing that certain Malaysian weld fitting manufacturers were using Chinese weld fittings and stamping them “Malaysian”. In July 2018, the International Trade Administration hit several large Malaysian weld fitting manufacturers with a 182% tariff.   This greatly impacts US master distribution supply chains. We expect to see price and lead time impact pending alternate sourcing efforts from weld fitting importers.
      • Copper Sweat / Press –Global demand remains soft (mostly due to relaxed China infrastructure growth) and inventories are in surplus. We expect stable pricing and lead times.
      •  Iron Fittings – Market has increased ~16% in 2018 due to rising scrap prices. Price should remain flat through the balance of 2018.  Lead times are very low.
      • Hangers, Strut & Threaded Rod – We have seen a ~24% increase in 2018 as manufacturers around the world are running at full capacity to keep up with world demand. Lead times remain low however the US Customs and Border Protection agency may stall containers at the port for inspection which could disrupt domestic warehouses from being replenished.
      • Bronze & Iron Valves – All of the commercial and industrial valve manufacturers have had several increases in 2018. The most recent round, which went into effect on October 1, ranges from 3-10%. We fully expect more increases in the fourth quarter as the tariffs weigh heavy on this sector of the market. Production capacity is stretched as demand continues to be strong.
      • Victaulic Grooved Product – Victaulic published an additional 6.5% increase in July 2018. Historically, Victaulic has one price increase every year but they had two in 2018 due to steel pricing for their foundries in US and China.
      • Stainless Steel Pipe, Fittings & Flanges –Stainless flanges increased 22.5% in early August due to tariffs and we expect similar volatility with stainless pipe and fittings though the end of 2018.
      • Forged Steel Fittings & Seamless Nipples – Forged steel fittings has seen ~25% increase in 2018 due to ITC trade case imposing tariffs (China Both-Well – 142%, India Both-Well – 116%, Italy MEGA – 80.2%) on rough forgings entering the US. Phoenix (Capitol) and Bonney Forge are 100% US made and manufactured however inventories continue to be disrupted due to less imports.
      • Forged Steel & Cast Steel Valves – We have seen a 50% increase in lead time as valve bodies become scarce globally due to trade reform. Lead times for many items are well into 2019 at this time.  Section 301 will cause an increase of 10% on most cast and forged steel valve items. This could rise to 25% pending Section 301 negotiations.