2019 Q2 Supply Market Outlook

Global supply chains will remain volatile through 2019.  Section 232 quotas on South Korea steel exports continue to shift steel and pipe production to the Middle East.   While ASEAN countries can continue to export welded pipe with the 25% tariff, we have not seen competitive numbers since Section 232 tariffs were implemented.

In Q1-Q3:2018, we saw a 55% increase in hot rolled coil (used to make welded pipe).  In Q4:2018 – Q1:2019, steel pricing softened as domestic supply increased.  We are now starting to see a small uptick in steel pricing although we expect steel to flatten out by the end of Q2 and remain flat through Q3.

We expect supply chains to remain volatile through 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 on May 29, 2018 under Section 301 was $50B of China exports into the US were imposed with a 25% tariff.  The second action taken on June 18, 2018 tariffed another ~$200B at 10% increasing to 25% (remains TBD) if there is no new trade deal struck between the US and China.   The US trade deficit with China sits near $347B.  President Trump is asking China to reduce this trade deficit by $200B within two years.

Category price and lead time update:

  • Domestic A53B GrB, A53F GrA & A135/A795 Pipe – Price to increase slightly through the end of Q2.   Domestic inventories of tubular products are ~25% of what they were in Q1.   Decreased supply is driving up prices while steelmakers increase the cost of flat and long steel products.
  • 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 8” and down A53B as a significant cost savings opportunity in 2019.
  • Copper Tubing –President Trump and China’s President Xi continue to negotiate a fair-trade agreement.  Copper trades at high velocities and daily news of these discussions affect the copper price.  We have noticed price swings of >30% with no change in global supply or actual demand for this metal.  If trade negotiations show progress, copper could rise another 10% quickly.
  • Domestic Weld Fittings & Flanges – After Weldbend’s 7.3% increase on fittings and flanges in Q2:2018, Weldbend imposed an additional 4.5% increase on flanges in June 2018.  All other domestic weld fitting manufacturers have retracted additional price increases.   We expect pricing to remain flat through 2019.  Lead times have improved 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 believe that we have seen the full impact of price and lead time increases as reflected in today’s market pricing.
  • 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 increased 16% in 2018 due to rising scrap prices.   Price should remain flat through Q3 2019.   Could possibly see a mild decrease if scrap prices fall late in the year.  Lead times are very low.
  • Hangers, Strut & Threaded Rod – We saw a 24% increase in 2018 as manufacturers around the world ramped up 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 had several increases in 2018. We saw 3-10% in Q3:2018 and another 5-12% in early 2019.  We expect a few more in 2019 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 their annual increase of 8% in Q1 2019.   They carried two increases in 2018 due to increased demand on their US and Chinese foundries.   As of now, we do not expect a second increase in 2019.
  • Stainless Steel Pipe, Fittings & Flanges –We have seen numerous increases in 2018 resulting from global supply constraints.  Domestic stainless producers are charging high premiums as reduced import inventory is available.  We expect to see stainless remain flat through Q2 2019.   Lead times low on commodity material.
  • Forged Steel Fittings & Seamless Nipples – We saw a 25% increase in 2018 on FS fittings due to an 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.  We expect 2019 pricing and lead times to remain flat.
  • Forged Steel & Cast Steel Valves – Lead times remain a challenge for these categories.