Sumitomo Metal Industries Limited would push back until the end of this year the startup of its USD 1.6 billion pipe mill in Brazil, owned jointly with France's Vallourec SA with regular shipments due to begin in mid 2011.

Mr Saburo Eguchi senior managing executive officer at the company said that "We are slightly behind schedule, but aim to start sample shipments by the end of this year."

According to Sumitomo, the plant, which will have crude steel capacity of 1 million tonnes per year was to start up in the middle of 2010 making 600,000 tonnes of seamless pipes annually. The company aims to bring the mill to full production capacity in 2012. Sumitomo and Vallourec, which dominate about 40% of the world's market for high end tubes for the oil and gas industry each plans to sell half the pipes produced at the plant.

Mr Eguchi said in response to the BP oil spill disaster in the Gulf of Mexico that the US has introduced 6 month moratorium on offshore drilling but demand is strong in other parts of the world, like the Middle East, China and India. The Middle East is becoming one of our biggest export markets. There is a surge in demand in Iraq while Sumitomo's US business is relatively small.

He said that the company was now focused on raising prices which had plunged last year in the aftermath of the economic crisis rather than expanding production volume. Sumitomo Metal, which supplies its products to oil majors like Exxon Mobil Corporation, Royal Dutch Shell and BP aims to boost export prices of its seamless pipes by USD 300 per tonne for the 6 months starting in October due to tightening demand.

According to a report by oil services firm Baker Hughes, despite lower natural gas prices and slower conventional gas drilling, the seamless pipe market was in the doldrums in 2009, hit by the global financial crisis but has started to recover this year on growing demand for oil. The number of rigs drilling for natural gas in the US hit 17 month high in the first week of August rising by 11 to 983.

Demand for higher end seamless pipes is particularly strong as unconventional drilling like horizontal drilling continues to expand. Under the process, companies drill wells sideways to reach specific pools of oil, which is beneath cities or environmentally sensitive areas where a rig cannot be set up.

(Sourced from Reuters)