The demand for steel pipes can be of two pipes one is the seamless pipes and the other is the Submerged arc welded pipes. The seamless pipes are generally made out of carving a cylinder and using a lathe to create a hollow. They are used for high pressure applications while the SAW pipes are used to manufacture the transport pipelines as they donot require high pressure operation. Moreover the demand for pipes generaly stems majorly from oil and gas exploration and drilling related activites. Once a successful well is found the requirement is that of SAW pipes to transport the oil found to the mainland and moreover as more and more blocks found are offshore the pipeline infrastructure required is huge. The number of rigs operational is an indicator of the requirement of pipes as more rigs means more pipes required. Oil country tubular goods segment is the major consumer of pipes in India.
The NELP is also a major source to find out how many blocks has been awarded. Since NELP generally operates with a lag of 2-3 years the Projects awarded in NELP now do not have a material impact on the order book of the companies. Moreover in NELP VIII the enthusiasm has not been very much from the players and out of the 70 blocks on auction only 35 blocks have been awarded so far.
Seamless pipes are also used in refinery operations. For internal transfer of fluids and distillates within the plant we donot require seams to be present in the pipes and hence seameless pipes form the bulk of operation there. According to the working group on petroleum and natural gas pipes in india the expected capacity was to grwot at a CAGR of 10% to around 240mtpa but we can assme that the capacity will reach only 224mtpa by 2012.
For irrigation infrastructure build up we require huge amounts of spending on the same. The pipes used here are ERW pipes. This is the major driver for Consumption of these kind of pipes.
Seamless pipes are also used in boilers of thermal power plants to a large extent and any demand pickup here would lead to a consequent demand pick up. It is expected that 50000MW of capacity addition would take place over the next 3 years which would result in huge demand generation of pipes in these sector for the boilers.
50000MW= 2,00,000cr. Out of this 40% goes in BTG and the rest in BoP and civil works. Out of this the boiler segment comprises 50% which translates into 40,000cr opportunity space.
Manufacturing process Steel billets/HRC form form 98% of the Raw material cost and 75% of the production cost.
A fully integrated player benefits as it is not dependent on the vagaries of price volatility but companies like Maharashtra seamless are dependent on the price of steel which fluctuates and hence their margins. ERW pipes are generally pass through contracts but seamless pipes are not and are fixed rate contracts. A gap of 2-3 months between procurement of raw matearial and supply to the end customer.
Chinese seamless pipes are an opportunity for Indian players. The USA banned the dumping of chinese pipes in US by imposing an antidumping duty of 10.9% to 30% on these pipes and similarly EU also followed with 24% duty. With teh US inventory going down there can be significant order inflows from US to Indian players.
Drilling segment requires pipes of 6 inches.
EBITDA margin per ton of Rs. 18000 for seamless pipes and for ERW at 2000-5000
Market share of various players in India
Jindal Saw - 10%
Maharashtra seamless - 50%
Imports - 15%
ISMT - 25%
Maharashtra seamlessThe company plants are located close to ports of Nava sheva in mumbai raigarh. It alos allows for easy import of steel billets. Also the company has acquired foreign assets at distress prices and imported them in India. It did a similar thing with a 50,000mtpa coating plant facility and is in the process of doing a similar thing for at Rs 325cr.
Types of Pipes The steel pipe sector can be divided into various categories according to their manufacturing process. The major types of pipes
are – Longitudinal Submerged Arc Welded (LSAW), Helical Submerged Arc Welded (HSAW), Seamless pipe, Electric Resistant
welded (ERW) pipes and Ductile pipes. ERW and DI pipes are also used to transport water but of late SAW pipes are fast replacing them due to their distinct advantages.
