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Outlook for The Large OD Linepipe Market

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Energy Portfolio

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Demand in recovery for the large OD linepipe marketProducersoflargeODlinepipeareoptimisticovertheoutlookforlinepipe

demandoverthecomingfiveyearperiod,followinglacklustregrowthinthe

previoustwoyears.Sincethestartoftheglobalrecession,linepipesupply

hasexceededdemandcausingpricestoslipandproducerstocutoutputrates

orshiftproductiontonon-energytransmissionpipe,whichcarriesanarrow

margin.Demandisnowinrecoverybutinthemeantime,therehavebeensome

structuralchangesinthemarketsthataffecttheprevailingsentimentaswellas

ouroutlookfortheindustry.

A change in focus is requiredFirstly,energydemandgrowthisnotthesameasitwaspre-recession.Theslow

economicrecoveryinthematuremarketsofNorthAmericaandEuropecurbed

energydemandgrowthandthelong-termoutlookforenergydemand.Energy

usagepatternshavebeenaltered,possiblypermanently.Environmentalconcerns

haveshiftedenergydemandtowardnaturalgasusageandawayfromoil.Thishas

resultedinachangeinoriginandtransportationofthefuel.Naturalgastends

tobetransportedinlarger-diameterpipe,favouringspiral-weldedlinepipeover

longitudinalweldedlinepipe(LSAW).

Theabundanceofnaturalgasfromimprovedandmore-efficientdrillingpractices,suchasfrackingtechnology

andpaddrilling,hasaffectednaturalgaspricestothedownside.Drillinghasnowshiftedtowardoilawayfrom

theless-profitablenaturalgas.Moreover,theneedforimportednaturalgashasnowbeeneliminated,andnow

naturalgasexportsintheformofliquefiednaturalgas(LNG)areunderreview.Morethan32bcf/dayofLNGexport

capacityisproposedintheUSA.

Eachofthesedevelopmentsaffectthesizeandtypeoflinepiperequired.Ingeneral,linepipedemandisnow

strongestinthesmallerrange,16-24”OD,ratherthaninthelargersizes.Whiletheshifttonaturalgasfromoil

wouldfavourlarger-sizedlinepipe,suchasover24”OD,ithasnotbeenthecase.Theslower-than-expected

economicrecoveryhasaffectedfinancingandlimitedtheamountofcapacityenergyfirmsarewillingtocommitto

transport.Pipelinesarenotapprovedunlessthecapacityofthepipesisutilizedbytheenergycompanies.Lower

committedcapacityresultsinlessneedforhigh-capacitylinepipe.Meanwhile,oilpipelinesrequiresmallersizes

andpaddrillingincreasetheneedformedium-diameterpipelinesconnectingtotrunklines.

The increasing importance of replacement pipeAlso,inthematuremarkets,demandforreplacementpipewillalsodrivelinepipedemandmorethaninthepast.

Linepipeproducersexpectthatreplacementpipeorderswillencompassagrowingshareoftheirsales.Andwith

failuresofoldexistingpipelines,thedemandwillgrowevenfaster.About60%ofoilpipelinefailuresand51%of

naturalgaspipelinefailuresaretheresultofcorrosionormaterial/weldfailures.Morethan60%ofthelinepipein

theUSpipelinesystemisover50yearsold.Thereisabout36,000milesofcastironpipestillinserviceintheUSA,

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mainlytheMid-Atlanticstatesandmorethan100,000milesofplasticpipe.Overtime,allofthismaterialwillbe

earmarkedforreplacement.

Infrastructureinvestmentisalsoneededindevelopingeconomies,especially

ChinaandtheMiddleEast.TheMiddleEastcountrieshavebeenmainlyexport

orientedsofarintheirenergyinfrastructure,butgrowingdomesticenergy

demandisrequiringfurtherpipelinedevelopment.Finally,explorationand

developmentismovingtomoreremotelocationsandalongerdistancefrom

consumingmarkets.

MBRforecaststhatthestrongestgrowthingloballargeODlinepipeoutputis

expectedtobeinthe2014-2015periodwithmoderatinggrowththroughout

therestofthenextfiveyears.Thegrowthwillbeledbyproductionofspiral

linepipe,withERWandLSAWtrailing.Theregionswiththestrongestgrowth

willbeEurope,India,NAFTAandChina.ProductioninChinaisexpectedto

declinein2016-17andthenrecoveragainby2018withsimilarresultsinIndia

andEurope.NorthAmericanlarge-diameterlinepipeoutputisexpectedto

postincreasingoutputgainsthrough2018althoughthestrongestgrowthwillbeinthe2013-15period.Still,much

ofthegainsinoutputwillbeinspirallinepiperatherthanLSAW,withtherestofthegainscomingfromERWmills.

Ashasbeenthecaseoverthepast3-4years,supplywillbesufficientfordemandandpricesareunlikelyto

riseappreciablyduringtheforecastperiod.

Inthenearterm,substratecostsarenot

expectedtoprovideaboosteither.HRcoil

suppliesareampleandplateproducershave

beenexperiencingtroubleinraisingpricesas

well.Aslinepipeoutputrises,excesscapacity

andfallingcostpressureswillcontinueto

weighonprices.

Source: Metal Bulletin Research

US imports of seamless casing and tubing (‘000 tonnes)Import tonnage tappered off at the end of 2012 as prices slipped

0

20

40

60

80

100

120

140

160

180

200

Apr09

Aug09

Dec09

Apr10

Aug10

Dec10

Apr11

Aug11

Dec11

Apr12

Aug12

Dec12

AsiaTotal EULatin AmericaEastern Europe/CISOther

Source: Bloomberg, Metal Bulletin Research

Crude Oil Spot pricesBrent crude oil prices fell to a three-month low in March

-20.00

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

Aug08

Jan09

Jun09

Nov09

Apr10

Sep10

Feb11

Jul11

Dec11

May12

Oct12

Mar13

Brent-WTI spread, $/bbl

Brent Crude, $/bbl

WTI, $/bbl

Source: Metal Bulletin Research

Welded substrate month-on-month performance, Oversupply has caused finished steel prices

to languish in the second quarter

-2.1%

0.0%

-1.8%

-4.3%

-6.0%

-4.5%

-3.3%

-7% -6% -5% -4% -3% -2% -1% 0%

MBR Raw Materials Index

Asia CR 304

EU CR 304

USA CR 304

China HR

EU HR

USA HR

Source: Metal Bulletin Research

Welded demand indicators month-on-month* performance, Stronger natural gas prices may

support a recovery in gas drilling rates

-9.4%

7.1%

-5.2%

-9.3%

-2.4%

2.6%

-23.9%

-30% -25% -20% -15% -10% -5% 0% 5% 10%

WTI

Henry Hub natural gas

Global rig count

US natural gas rig count

EU IP (y/y % ch)

US non-res. cons. Exp. (y/y %ch)

China FDI:ytd construction (y/y %ch)

*Unless otherwise noted

AselectionofMBR’sanalysisdata

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Metal Bulletin Research’s Energy SolutionPervasiveeconomic,financialandpoliticalinstabilityhavecreatedanextremelychallenginginvestment

climate.Businessdevelopment,marketingexecutivesandinvestorsneedexpertguidanceabouttrendsin

theglobaleconomyandpolicy,andtheimplicationsforyourstrategy.

Energyandpetroleumproductpricesremainhighrelativetoeconomicgrowthanddemandexpectations.

Theoutlookforconsistentsupplieshasbeenmarredbypoliticalconcernsandregionalsupplyand

infrastructureshortcomings.Theseinconsistenciespointtoagreaterneedforinfrastructureimprovements

anddevelopment,includingnewandexpandedpipelinecapacityandLNGfacilities.

Theenergyindustryisundergoingsignificantchangewhichwillhaveimportantimplicationsgoingforward.

MBR boasts the largest network of tube and pipe intelligence worldwide with analysts situated in the US, Middle East, Eastern Europe, UK and Asia. This has earned us the unique status as the world’s foremost specialist in the global metal analysis for the energy industry.

Market TrackersMBR’sTube&PipeMarketTrackersaredetailedforecastingreportsthatmonitorthedirectionofthemarket.Bothofourtubeandpipeproductsarepublishedmonthly,withadditionalExcelfilesandgiveyouregularaccesstotheeditorsforconsultations.

Seamless Steel Tube & Pipe Market Trackerz Shortandlongtermforecastsofregionalpricemovements

z SupplyanddemandanalysisonkeymarketsinAsia,EuropeandNorthAmerica

z AnalysisofkeydevelopmentsinOCTG,linepipe,boilerpipeandmechanicaltubingmarkets

z Detailedcapacityupdatesandcoverageofcapacityutilizationforthemajorproducingcountries

z Dataontradeflowsandkeyend-userdataformajorconsumersincludingtheoilandgasandautomotivesectors

z Strategicanalysisandinsightsintoleadingindustrycompanies,includingsuppliersanddistributors

Downloadable data

z US,W.Europe,E.Europe,China,JapanseamlesspipepricesbyproductbacktoJan2004,plusselectedsix-monthpriceforecasts

z CurrentandhistoricalEuropeanseamlessproductiondatabymajorcountry

z ComprehensivedatabaseofUSseamlessproduction

z Asianseamlessproductionbymajorcountry

z Energypriceswithextensivehistoricaldata

z TradeflowsfordevelopingeconomiesinAfrica,MiddleEast,andEasternEurope

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Welded Steel Tube & Pipe Market Trackerz AnalysisofkeydevelopmentsinOCTG,linepipe,hollowsectionsandmechanicaltubingmarkets

z Dataontradeflowsandkeyend-userdataformajorconsumersincludingtheoilandgas,manufacturingandconstructionsectors

z Intelligenceonactivitybydistributorsandsuppliers

z Strategicanalysisandinsightsintoleadingindustrycompaniesfromourinternationalteamoftubeandpipespecialists

Downloadable data

z Weldedtubeandpipepriceswithfive-yearhistoryandone-yearforecast

z NorthAmericanshipmentsofweldedpipebyproductwithextensivehistoricaldata

z NorthAmericanapparentconsumptionofweldedpipewithfive-yearhistory

z ComprehensivearchiveofAsianweldedtubeproductiondatabymajorcountry

z Europeanweldedtubeproductionandapparentconsumptiondatabymajorcountry

z TradeflowsfordevelopingeconomiesinAfrica,MiddleEast,andEasternEurope

Strategic Reports MetalBulletinResearchpublishesarangeofin-depthstrategicforecaststudiesavailableforone-off

purchaseofferinglong-termforecastsandjustifiedrecommendationstoassistinyourstrategicdecision

making.

The Five Year Outlook for the Global OCTG MarketThisstudyprovidesindependentbycountryandregionalanalysisofOCTGmarkettrends,

andamedium-termforecastforsupply,demandandpricingincludingthefollowing:

z DemandforOCTGby-country,regionandproductgroup

z Medium-termforecastforpriceoutto2020

z SeamlessandweldedOCTGmaterialglobal,regionalandby-countrysupplyanddemandbalance

z InsightsondriversbehindOCTGdemanddynamicsby-country

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A Strategic Outlook for the OCTG Heat Treatment, Threading, Coupling and Premium Connection Sectors out to 2020ThiscomprehensivestudyexaminesthestrategicgrowthopportunitiesfortheOCTGindustryanddetails

currentandfutureprospectsfordownstreaminvestmentsoutto2020.

ItlooksindepthatwhatthemajorinfluencesthatwillshapetheOCTGindustrywillbe

overthenextdecade.Thestudyalsoprovidesdetailsontheavailablethreadingcapacity

by-countryandnewdownstreamproductioncapacitiesbeingbuiltby-majorcountryandcompany.

‘This timely and ground-breaking report harnesses MBR’s unique status as the world’s foremost specialist in

global analysis of the steel tube and pipe markets.’

Murat Balapanov, General Director, Caspian Pipe Industries

The Five Year Strategic Outlook for the Global Large-diameter Linepipe MarketThisstudyanalysesthefactorsthataredrivingtherecoveryinover16”(406mm)

linepipedemand,supplyandpricingandtowhatextentprevailingpriceswill

increasegoingforwardinthisenvironmentofrisingcosts.

“A trusted and reliable business intelligence provider in determining my global tube and pipe business

strategy”.

John Bloomberg, Director, Tube and Pipe Division, Duferco SA, Switzerland

Prices for MBR’s Energy Solution

Weofferexcellentratesfor

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informationneeds.

Pleasecontactusforaquote:

Products Price

SeamlessSteelTubeandPipeMarketTracker £1,790/€2,545/$3,465

WeldedSteelTubeandPipeMarketTracker £1,790/€2,545/$3,465

TheFiveYearOutlookfortheGlobalOCTGMarket £8,995/€10,490/$14,750

AStrategicOutlookfortheOCTGHeatTreatment,Threading,CouplingandPremiumConnection £8,995/€10,490/$14,750

TheFiveYearStrategicOutlookfortheGlobalLarge-diameterLinepipeMarket £8,995/€10,490/$14,750

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p RawMaterialSupply(0003)p Metal/SteelProduction/p Processing(0027)p Fabrication/Manufacturing

(0055)

p Distribution(0095)p Services/Productsforthe

Industry(0111)

p End-UserSector(0167)

p FinanceCompanies(0271)p Production(0275)p Processing&Equipment(0279)p Trading(0287)p Transport–Ports(0291)p Non-FerrousFoundry(0303)p Extruding(0311)p OtherPrimaryMetalProducts

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p BaseMetals(11001)p Aluminium(11002)p DownstreamAluminium(11157)p PreciousMetals(11160)p MinorMetal(11267)p LightMetals(11360)p Steel(12001)

p SteelTube&Pipe–Seamless(12042)

p SteelTube&Pipe–Welded(12043)

p StainlessSteel(12159)p SteelWire(12230)p Galvanising&CoatedCoil

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