In the H1 of the year, out of all TMK markets the Russian OCTG market was the least affected by the crisis. Demand for OCTG pipes in Russia in the h1 of 2009 dropped by approximately 18%, while the US OCTG market shrank by 33% during the same period. Despite Russian oil and gas majors cutting E&P budgets, drilling activity in the first six months of the year was only down by 5%.
The OCTG market performed relatively well due to the high tubing pipe consumption rate in Russia; TMK sales of tubing pipes in Russia increased by 16%. TMK expects a visible recovery in OCTG and line pipe demand in Russia in the second half of 2009; however this might not be sufficient to bring 2009 annual volumes back to 2008 levels.
The large diameter pipe market remained rather depressed for the first four months of 2009. Demand for LD pipes started coming back in May, driven by the construction of major Gazprom, Transneft and Turkmengas pipeline projects. We continue to see robust demand in the second half of 2009 with bookings for longitudinal welded large-diameter pipe extending through the H1 of 2010.
Industrial pipe demand in the H1 of 2009 was down by approximately 40% compared to the first six months of 2008; however, order activity for industrial products is picking up. In the Q3 of 2009, TMK welded industrial pipe shipments increased by 20% while seamless industrial shipments increased by 47% QoQ.
The US oil and gas pipe market experienced quite a dramatic decline in the first six months of 2009 with rig count falling from around 1,800 rigs to below 900 and OCTG pipe inventory build up exceeding 12 months of supply. According to Pipe Logix, average OCTG prices in the US fell by 40% in the H1 of 2009.
We began to see what could be described as the first signs of a US OCTG market bottom as rig count started moving back from its June lows and downward pricing trends lost momentum. However as long as such high level of inventories remain on the ground and gas prices remain depressed, we don’t expect to see a significant demand recovery before 2Q 2010.
On other markets, including the Middle East and North Africa, we observe stiffer competition compared to previous years as lower-grade pipe products were redirected to these regions following the collapse of the US market and the threat of looming trade restrictions. We expect these markets to recover in 2010.
