Large diameter drop

Pipe manufacturers faced a decline in demand for LDP.
TMK Dmitry Pumpyansky and ChTPZ Andrew Komarov, which account for about 45% of the production of large diameter pipes (LDP) in Russia, have reduced domestic sales in the segment due to a slowdown in the rate of purchase by Gazprom. At the same time, the share of TMK expectedly fell by half in favor of ChTPZ after the company did not receive orders for Nord Stream 2. TMK should catch up with the long-term contract with Rosneft. But the LDP market in the Russian Federation will remain volatile, experts believe, and companies should rely on sales of other types of pipes.

Semi-annual results of TMK and ChTPZ, disclosed at the end of last week, confirmed skeptical forecasts for demand for LDP in Russia. The Russian division of TMK increased its revenues for the first six months of 2017 by 11%, to $ 1.54 billion, but the company noted that growth in the seamless pipe segment, in particular OCTG (oil and gas assortment, sales rose 4.9%, to 576 thousand Tons), "was completely offset by a significant drop in revenue from the sale of welded pipes due to a reduction in the sales of LDP." The company does not give specific figures, but by the year of its shipment of welded pipes fell by 32.2%, to 363 thousand tons, and sales of LDPs fell by 60.9%. Based on ChTPZ data, in the first half of the year, TMK's Russian plants sold slightly more than 100,000 tonnes of LDP, and Pumpyansky's share in the Russian segment in the segment declined to 10% from 20% at the end of 2016 (including exports).

ChTPZ's revenue in January-June increased by 6% to 72.5 billion rubles. On the contrary, the company increased its LDP sales by 12% year-on-year to 371,000 tonnes, and its share in the Russian market for the production of these products increased Up to 35% from 26% at the end of last year. However, such a dynamics is explained by the upsurge in export sales by 315%, up to 270 thousand tons, and primarily by pipeline supplies for the Nord Stream 2 gas pipeline. In March 2016, Chelyabinsk Chelyabinsk Pipe Plant and OMK Anatoliy Sedykh received orders for 60% of the LDP for the gas pipeline: The order for 594 thousand tons, the second - for 726 thousand tons, and TMK did not pass under the tender.

At the same time, ChTPZ noted that the semi-annual sales of its pipes in Russia fell by 13% to 707 thousand tons, and "the decrease was affected by the transfer of the LDP shipment schedule for the projects of Gazprom - the Power of Siberia and the North European Gas Pipeline" . TMK's report also indicates: the decline in the supply of its LDP to Russia occurred "because of a slowdown in the purchase of pipes for construction of main gas pipelines and maintenance work by oil and gas companies."

10.3 million tons of pipes were produced in Russia in 2016, according to the Fund for the Development of the Tube Industry

In general, in 2016, the demand for LDP in Russia fell by 35%, to 2.14 million tonnes, and in the near future will continue to decline "despite the construction of major pipeline projects," the Pipe Industry Development Fund (uniting the largest players). According to ChTPZ, sales of LDP in Russia in the first half of 2017 amounted to only 682 thousand tons, although the company and TMK forecast a recovery in demand in the second half of the year.

Dmitry Pumpyansky said in an interview with TASS in July that "due to the drawdown of demand for LDP consumption in the whole country will be 0%, minus 2% or 3%, and this can not be called a drawdown - it is almost a constant level of consumption." At the same time, the businessman noted that the industry is optimistic about 2018 and expects new projects of Gazprom, stable consumption from Transneft, in addition, "actively develops LDP consumption" Rosneft "by entering the gas sector and building powerful Internal oil pipelines. " The loss of orders for Nord Stream 2 in the future revenue of TMK just compensates for the supply of Rosneft: in June, the parties signed a contract for five and a half years to supply 3.5 million threaded pipes worth about $ 3.3 billion (about 50% Rosneft "in casing and compressor pipes until 2022).

The LDP market in Russia is very volatile and, in fact, depends on demand for specific projects of state-owned companies, says Andrei Lobazov from Aton. Despite the fact that in the second half of the year some recovery may come, forecasts for the coming years remain very cautious, the expert believes. TBD is a rather specific and highly marginal product, accounting for about a third of Russian pipe producers' income, Mr. Lobazov explains, so companies need to be prepared for a difficult market and continue developing other OCTG pipe production assets.