Could steel production boom turn into a bust

By on Wednesday, June 3, 2015

The Wall Street Journal reports that the fanfare surrounding Timken Co.'s $225 million expansion to boost steel production by 25% much of it for the energy market a nagging worry for the steel industry: oversupply. Indeed, steelmakers adding production from Texas to Pennsylvania, and foreign producers are boosting exports of steel used in natural gas drilling just as energy companies are scaling back, due to falling prices of natural gas amid abundant stockpiles of the fuel, the newspaper reports.

of the more profitable steel pipes, casing and tubes used to drill for and produce gas have leveled off since November to just under $2,000 per ton after three years of increases, according to The Journal. in warehouses, a good measure of how fast stock is being snapped up by customers, are near the limits of what is healthy, distributors say. While there is no glut of steel used by the energy industry yet, some are concerned that excessive supply of such products may be around the corner. Steel Corp., tells The Journal, like our gas drillers to be a little busier than they are today, if we had a choice. Steel is upgrading a Lorain plant to produce more steel tubular goods.

Although low natural gas prices help the company keep its own energy costs low, the current price of around $2 per million British thermal units are almost "unsustainably low" Mr. Surma tells The Journal. That, in turn, suggests without an incentive to drill more, natural gas providers may order fewer steel products, the newspaper notes.

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for Appalachian coal are down 24 percent over the past 12 months; for coal from the Powder River Basin in Montana and Wyoming, they're down 45 percent, the magazine notes.

the prices you're looking at now, no one can make money, says Lucas Pipes, an analyst at Brean Murray, Carret.

Coal's big challenge at this point is cheap natural gas.

all the shale reserves unlocked by fracking, gas prices have steadily declined since mid 2008, to the point where they're hovering around $2 per million British thermal units for the first time in a decade, according to the magazine.

lower than coal prices. The natural gas is all domestically derived energy, so the country's fuel import bill doesn't go up, Bloomberg Businessweek adds. clean. And it's so abundant that the industry may run out of places to store it. Utilities that switch to natural gas are already passing savings on to customers. utility bills should fall 1 percent. The counterargument in the piece comes from FBR Capital Markets, a Virginia based investment bank, which thinks most coal to gas switching has already happened, and further switching will be harder because of logistical constraints and existing contracts.


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