The Hindu Business Line : Pipe cos showing slowdown leaks

Maharashtra Seamless Ltd last week cut its production target for certain types of pipes used by the oil and gas industry, as the company expects the steep decline in crude oil prices to hurt exploration and production activities.

Earlier this year, Welspun Gujarat Stahl Rohren has trimmed its steel plate production target for FY09 by 43 per cent and is not producing commercial grade plates for sale due to lower prices since middle of this year.

The listed pipe entities -- Maharashtra Seamless, Welspun Gujarat Stahl Rohren Ltd, Jindal SAW, Man Industries and PSL – have increased capacities and also cornered global market share in the last couple of years.

Price movement

The recent price movements, however, suggest a recovery after a sharp fall. Analysts have been focusing on the global opportunities and Indian company’s firm foothold overseas, particularly in the US.

Over the next 4 to 5 years globally pipeline projects, worth $ 109 billion, are slated to be undertaken and Indian pipe manufacturers are expected to garner at least 15 per cent.

According to SBI Caps Securities this means a $16 billion opportunity for the Indian pipe makers, which is among the world’s top three manufacturing hubs after Japan and Europe.

Orderbook

The brokerage in its recent note said that the Indian pipe manufacturers have a combined orderbook of over Rs 22,800 crore are expected to post – Rs 23,500 crore in annual sales during FY 10E.

Two of the leading Indian pipe manufacturers have commissioned or are in advanced stages of commissioning their USA pipe mills, while a third Indian company is expected to commission its USA pipe mill in 9 -12 months.

Further, there is a pressing need to replace 65 per cent of the existing US pipelines in order to avoid accidents and supply disruptions.

Considering that the annual global production of steel pipes have been over 16-17 million tonnes, the replacement of 1 mn miles (equivalent to – 485 m.t.) of pipelines would take at least 25 years to complete.

Even though crude oil prices have corrected significantly and brought about slackness in exploration activity in the short-term, analysts expect that medium to long-term crude oil outlook suggested sufficient margins to continue with the E&P.

Dumping duty

Following the imposition of the anti-dumping duty on the Chinese manufacturers by the US, the Chinese government has scrapped the export rebate and levied a 15 per cent export duty in an effort to curb the rising inflation.

Moreover, the Chinese Yuan has strengthened by a sharp 18.9 per cent against the rupee in the past four months.

Both these factors have provided a much-needed respite to the Indian seamless pipe manufacturers.

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