Why Are Korean OCTG Producers Playing Russian Roulette?

If that were the case, the importers (Korean entities, as explained above), would have to pay up. There are a couple of theories as to why they act like they have nothing to worry about. One, they expect their margins will continue to be zero, or, if they go up, they will stay in in a manageable range of 10% or less. To me, that’s like playing Russian roulette. Two, they don’t care (unlikely). Three, they were prepared all along this might happen, but the business they did in the past was profitable enough for them to be able to take such hit. Four, their coil suppliers (mainly Posco) will share the burden, because they need the business as badly as the pipe mills do. This last scenario seems to make the most sense.
 
2.) Who are the US customers for this material, and why are they not buying domestic material, especially since there has been so much new capacity, either installed or being installed, in the US. Why have the domestic mills not pushed back harder?
 
The first part of the question is easier to answer  –  US-based pipe distributors, and possibly some end-users in rare cases. The second part is a bit more complicated.
 
US producers ask for, and in most cases get, quite a premium in their pricing over what imports cost. To simplify matters a bit, let’s assume the US market consists of 3 layers. The top layer involves fairly complicated steel grades, such as P-110 or higher, and requires so-called premium connections. It is for the most part dominated by the domestic mills. The bottom layer mainly consists of imports, material that comes in as “J-55 plain end”, which is then end-finished in the US and often upgraded to higher grades like N-80 or L-80. These operations are performed at a much lower cost than what the domestic mills charge, for a variety of reasons, which in turn contributes to the gap between domestic and import pricing. The middle layer then really is a mix  –  some of the better imports participate in it and compete with those domestic mills which are either very hungry for orders and / or are not able to attain (yet) the quality level which would allow them to play in the top league.
 
Now the annual consumption of OCTG in the US market runs between 6 and 7 million tons, approximately half of which is covered by imports. Old domestic capacity is approx. 6 million tons, and the new mills will add approx. 4 million tons to that. So, even in the best case scenario  –  imports staying where they are, for which there is no guarantee  –  roughly 10 million tons of domestic capacity will fight for 3 to 3.5 million tons not covered by imports. It should be obvious that the situation in layer 2 is cut throat, which might spill over into layers 1 and 3.
 
Obviously, if the Koreans are able to stay in the market, it does not take a genius to prophecy a bloodbath.
 
3.) Are the Koreans that much cheaper than the Turks (or others)?
 
First, some of them are. Second, Korean pipe has a higher acceptability rate in the market than Turkish  –  not necessarily because their quality is better, but mainly because they have been around much longer. Third, the Turkish mills are facing 25% countervailing duty. In this context, it also needs to be noted that most of the Vietnamese and Indian mills and all of the Philippine and Thai producers have been taken out of the game because of the substantial preliminary margins they received.
 
As an interesting side note, Mario Longhi, the CEO of US Steel, claimed during a speech in W. Virginia that the outcome of these trade cases is important for the coal mines in that state, because coal is used in the production of steel, including OCTG. While this is technically correct, it’s a bit of a stretch in my book. First, a lot of the coil that goes into the production of OCTG is made by scrap-based Electric Furnace producers. Second, they are many other places in the US that produce coal, and third, coal has a big target on its back at present. It has to compete with domestically produced oil and gas (which is where practically ALL of the OCTG is going), and moreover, coal simply has become a problem environmentally. Gas in the $ 4.00 per million BTU range is cheaper, and, more importantly, it produces about half the pollution that a comparable amount of coal does.
 
Peter Brebach