March 3, 2014
It’s no secret that Düsseldorf’s biennial tube and pipe expo, TUBE®, is a good way to gauge the industry’s health. The expo is 3 percent larger in 2014 than it was in 2012, and the exhibitors interviewed for this article expect good things from the industry in the coming year. These in-depth perspectives also revealed that upheaval in the U.S. energy industry is leading to changes that will have repercussions for decades.
Because tube and pipe are used in myriad applications, it’s not an exaggeration to say that size of the biennial TUBE® expo in Düsseldorf, Germany, reflects the state of industry throughout the world. Construction equipment, agricultural equipment, retail goods, commercial products, automobiles, nonresidential construction, and energy rely on tube and pipe, and so do countless others. Tube and pipe know no barriers—the production and consumption of these products provides an industrial barometer in both advanced and emerging economies throughout the world.
Several expo exhibitors interviewed for this article agreed that, barring any unforeseen circumstances, 2014 is shaping up to be a good, solid year for the tube and pipe industry.
As of January, the expo organizer, Messe Düsseldorf, was expecting more than 2,000 exhibitors to reserve 1.1 million sq. ft. of space at TUBE 2014 and the concurrent wire® 2014. In 2012, 1,200 TUBE exhibitors reserved 522,049 sq. ft. of booth space; by January 2014, a similar number had reserved 538,200 sq. ft. The growth reflects confidence in not only Germany or the whole of Europe, but worldwide. Most of the exhibitors are from Europe, but the U.S., India, Taiwan, and China have substantial booth presence. The visitor makeup also has a strong international component; while many are from Europe, 55 percent are from outside the continent, notably the U.S., Brazil, India, and China, according to information furnished by the organizer.
Ike Tripp, president and CEO of Etna Products Inc., Chagrin Falls, Ohio, observed that the countries linked together by the euro currency face better prospects now than they did in the last couple of years. Tripp maintains close ties to the continent by developing lubricants that comply with strict European regulations and marketing them through a European partner, Etna-Bechem Lubricants Ltd., Hagen, Germany.
“Europeans were worried about the future of the euro, but it seems that they have most of the issues worked out, and Europe is on the mend,” he said, referring to the sovereign debt crisis on the other side of the Atlantic, which followed on the heels of the subprime mortgage crisis on this side. Some analysts thought that the euro currency was in jeopardy, but judging by its value, it’s a healthy currency once again. Before the crises in the middle of 2008, the euro was valued at $1.60. As the crisis unfolded, the currency lost value quickly, falling to approximately $1.25 by December 2008. It gained and fell twice more, once to less than $1.20, but it has gained strength since July 2012 and, as of press time (early February), had climbed to $1.37.
In an interview conducted in November, Friedrich-Georg Kehrer, the director of the tradeshows, cited steel industry data that also predicts better times ahead. The Steel Trade Association predicts growth of 3 percent in 2014; the German Metals Trade Association expects production to be similar to that of 2012; and aluminum manufacturers expect the trend toward lighter-weight aircraft and automobiles to continue to help their industry, Kehrer said.
Recent business predictions also point to a strong 2014. Ifo Institute, which publishes a monthly business survey, found that current business conditions in Germany in December weren’t great, but it predicted a solid first half for 2014. Low inventories, future price increases, and staff expansions were common themes in manufacturing sectors as varied as capital goods, consumer goods, vehicle manufacturing, and finished goods.
The latest World Economic Outlook, published in October 2013, indicated that core European economies were recovering, predicting 1.4 percent growth for Germany and 1.0 percent for France in 2014. The southern periphery countries are expected to grow, but not as quickly. The forecasts for Italy and Spain are 0.7 percent and 0.2 percent, respectively.
Frank Nachtigall, laser tube cutting equipment product manager for TRUMPF, Ditzingen, Germany, broadly concurred with these assessments.
“Although there are some positive signs, we’re still seeing uncertainties in some of our very important markets, such as Spain, Italy, and Germany,” Nachtigall said, but this is counterbalanced by several improving markets to the east—Czech Republic, Poland, and Russia—and some on the other side of the Atlantic, specifically the U.S., Canada, and Brazil. Furthermore, the company is expecting to see a change in fortunes within the next few months in Europe, especially Germany, and in important Asian markets, Nachtigall said.
In the U.S., equipment investment, measured by the Bureau of Economic Analysis, was unpredictable at best in 2013. It grew a paltry 1.6 percent in Q1, a respectable 3.3 percent in Q2, slumped to 0.2 percent in Q3, and came roaring back with 6.9 percent growth in Q4.
Magnetic Analysis Corp. (MAC), Elmsford, N.Y., a manufacturer of eddy current and ultrasonic testing equipment for tube and pipe production, experienced this sort of hot-and-cold activity from one month to the next, said Vice President of Sales Dudley Boden. It wasn’t just its domestic customers, but foreign customers, too, regardless of geography or industry.
MAC has many customers in advanced economies, where the markets are mature and most of the business is for replacements or upgrades, and others in emerging economies, where the action is start-up installations. An exception is the U.S., which has provided many new business opportunities in new tube and pipe plants and related to the automotive industry recovery.
In emerging economies, MAC does quite a bit of business in Russia, mainly in oil and gas; in India, where its big segments are automotive and energy (nuclear and oil and gas); and in China, where MAC’s biggest markets are similar to those in India, plus aerospace. Despite the diversity of geographic locations and markets, the aggregate behavior in 2013 was enthusiasm followed by caution.
“It seems like every company is waiting for the next day’s financial reports,” Boden said. “We go through a month where we just can’t keep up with quotations or orders or one thing or another, and then a month later, it all dries up. People aren’t willing to go full-bore. It’s like they’re watching the stock market and watching the financial markets, and they’re reacting to every day’s events. We still have good business overall, but it’s hard to forecast one month to the next.”
Although MAC’s quoting level stabilized as 2013 drew to a close and 2014 opened for business, Boden said it was too soon to call it a trend.
John Hillis, president of tube and pipe mill builder and tooling supplier T&H Lemont, Countryside, Ill., didn’t experience up-and-down activity in 2013. It saw six months of down, then six months of up. Hillis surmised that it was rooted in caution about politics more than lack of demand for goods and services.
“We had a great year in 2012, but the first half of 2013 put us back on our heels,” he said. “It was great for automotive, but it wasn’t good for many other industries. Some of our customers had pent-up demand for expansion and capital investment, and I think many were looking at Washington [D.C.] and asking, ‘Where are we going?’ They were looking for some leadership.”
This caution was justified. Congress’ inability to work up a series of specific budget reductions led to wholesale budget cuts, also known as sequestration, which started on March 1. This was followed by the lack of a budget for the 2014 fiscal year, which started Oct. 1. The results were sudden reductions in government spending—reductions felt throughout the manufacturing community—and a shutdown of the federal government that lasted from Oct. 1 to Oct. 16. However, this didn’t affect T&H Lemont. By this time, many of its customers had already made their own plans.
“They had projects on the table, and many got to the point where they said, ‘We’re either going to do this or we’re not,’ and pressed forward with expansion plans,” Hillis said. “I think many of them came to the conclusion that Washington was going to provide no leadership.”
When the tide changed, it changed in a hurry, Hillis said.
“Tooling is a leading indicator,” he said. “When we see tooling sales start to increase, we expect equipment sales to follow about six months later. Last year  was different. About halfway through the year we started to see increases in tooling sales, and equipment followed about a month later.”
Lubricants also serve as a leading indicator for manufacturing activity. Etna’s Tripp said that after a lackluster 2013, he’s seeing signs that 2014 will be solid, but not spectacular.
“Steady holds the course,” he said. “We’re capturing some new business from people who are making new products, and they need new lubrication solutions, so we should have a very good year in 2014.”
In the U.S. and elsewhere, several subtle, slow-moving changes have been working their way through various industries, with far-reaching results.
The Right Capacity. Working in a commodity industry is never easy. The business cycles are rough, to say the least. Rising demand leads to rising prices, which leads to the temptation—or mandate—to add capacity. Inevitably the prices fall, wreaking havoc on the industry, and eventually the cycle starts again.
Hillis observed that at one time, the U.S. steel industry had little spare capacity. At that time price changes were a good leading indicator of manufacturing activity; a surge in demand led to rising prices. These days the price of steel is stable, and if anything, it’s declining, Hillis said, which he thinks reflects a larger aggregate steelmaking capacity. Hillis predicts stable steel prices for the foreseeable future, a welcome predictability for steel consumers of all sorts.
Further down the chain, tube and pipe producers are prone to the same boom-and-bust cycle, depending on the industries they serve. The energy market is one of them.
“Our big market has been energy,” Hillis said. “About every two years, people in this market worry that the industry has too much capacity. They said it again about 18 months ago. Since then two big players have said they would invest in even more equipment, and nobody is saying anything about capacity. I think this reflects new exploration in new oilfields, mainly tar sands and shale deposits,” he said.
Hillis thinks that consolidation among tube and pipe producers over the last few years has made the industry less volatile. Meanwhile, the expansion of oil and gas drilling, especially with the increased use of horizontal drilling and hydraulic fracturing, has increased the size of the market notably, and the production capacity in the U.S. is probably about right for the size of the market.
Another noteworthy trend is the changing mix of imported to domestic tube and pipe used by U.S. energy companies. Although the world’s production capacity has been growing in recent years, imports are a small part of the U.S. supply lately because of actions taken by the U.S. International Trade Commission.
“We’re seeing a huge increase in demand for our products from our global customers, some of whom are building plants in the U.S. in response to anti-dumping rulings,” said Susan Conley, product manager of tube and pipe for Quaker Chemical Corp.
Energy Industry Adjustments. Pumping more domestic oil and gas has far-reaching effects. In addition to keeping more energy dollars at home, it also provides oilfield jobs and bolsters demand for all manner of tools, equipment, and supplies, including tube and pipe. Less reliance on foreign sources also enhances price stability.
“Political upheaval and major conflicts around the world won’t affect the price of oil like they used to,” Hillis said. “The price of oil is stabilized. It’s not going to fall by much. It might go down to $98 per barrel, but that’s about it.” Price stability reduces the risks associated with exploration activity.
However, diesel fuel is another matter. For decades the price for diesel was lower than the price for gasoline, but since 2003 or so, diesel has been more expensive. It’s a matter of demand getting ahead of refining capacity.
“We may have hit the mother lode, but delivering the mother lode isn’t so easy—it’s an infrastructure problem, and it’s going to take a while to fulfill,” Hillis said. “It would be good for the pipe and tube industry if they can get approval for the pipelines, but it’s going to take some time.”
The higher price has increased the price of trucking goods from place to place and created some regional opportunities for some tube and pipe manufacturers, Hillis said. The increased cost to transport tube and pipe, even if it added just pennies per pound of freight, redrew some of the territory boundaries for some tube and pipe producers. Hillis also noticed that a new tube and pipe facility near the Bakken deposit might be a good idea, but risky—a sudden drop in the diesel fuel price would undo the proximity advantage.
Meanwhile, the vast U.S. supply of natural gas, unlocked by hydraulic fracturing, is changing the energy market immediately, and it has long-term implications for manufacturing.
In its pure form, natural gas is just methane, or dry gas. However, many natural gas deposits contain wet gas, which contains other hydrocarbons, such as ethane, propane, butane, and pentane. These can be separated and used on their own, or they can be further processed to make other chemicals, which are feedstock for scores of products. The process, colloquially known as cracking, turns ethane into ethylene, which is used in manufacturing plastics. Methane itself can be turned into methanol, a feedstock for making paints, plastics, formaldehyde, acetic acid, MTBE (methyl tertiary butyl ether, a gasoline additive), and dozens of other common products.
“Cracking is used to make the chemicals that are used in hundreds of products that people use,” Tripp said.
A small gas-cracking plant can cost as much as $1 billion, Tripp said. “Shell is planning to build one in Monaca, Pa. It’s going to use a lot of pipe, a lot of tube, create a lot of construction jobs, and all the offshoots,” he said, referring to additional construction and business activity in the immediate area.
Tripp pointed out that this is another factor changing the balance of power in the energy industry.
“It’s a global economy, and with the U.S. having a very big jump on shale gas development, money is coming into the U.S. to build methane-cracking plants here, rather than all that money going to the Middle East,” Tripp said. “The U.S. has more economic stability and more political stability than many other energy-rich nations in the world, and these factors drive investment decisions.”
Conley cautioned that while the exploration and drilling activities have been moving along quickly, a couple of speed bumps threaten to slow the industry a bit: low prices and environmental concerns.
“The price of natural gas has been depressed for quite a while, which limits exploration, but this market is a huge potential opportunity” she said. According to the Energy Information Administration, in 2013 the average wholesale price for natural gas was $3.73 per million BTU, which was nearly $1 below its long-term average price. Persistently low prices make it difficult for energy companies to earn a return on investment, and dramatic price swings also add uncertainty; since 2008 the wholesale price has varied between $1.82 and $13.31 per million BTU.
Meanwhile, 178 communities in New York alone have instituted either a ban or a moratorium on hydraulic fracturing, based on concerns that it can affect groundwater quality.
Although persistently low prices hamper exploration efforts, they might have a long-term benefit to the energy industry. Conley pointed out that they encourage conversion to natural gas wherever practical, creating a larger long-term demand.
Alloy Advancements. All eyes seem to be on the automobile industry, and it’s not hard to see why: Automobile production uses plenty of tube, employs plenty of people, and is relatively easy to tally. It’s also growing quickly. Worldwide automobile production more than doubled from 2002 to 2012, from 41.4 million units to 84.1 million units.
But it’s not enough to count automobiles; it’s important to keep an eye on changes in production processes. For example, years ago exhaust systems were made from galvanized steel and didn’t last long. In some cases, they lasted less than five years. Key developments in improving exhaust system corrosion resistance were the adoption of stainless steels and laser welding, said Henning Mutschler, industry management, tubes and profiles for TRUMPF Inc. A laser’s small spot size makes a small heat-affected zone, resulting in better corrosion characteristics than welds made with conventional gas tungsten arc welding (GTAW, or tungsten inert gas [TIG]).
Many automobile producers in developing countries—notably China—still rely on galvanized steel for exhaust components, but Mutschler thinks the change to stainless steels and laser welding is just a few years away, probably less than five. Mutschler also thinks that, in addition to laser welding equipment, China’s domestic exhaust suppliers also will need new mills. The small spot size of a laser welding machine, which is about 1/10th the diameter of a TIG arc, requires a modern, well-maintained mill for minimal gap, edge mismatch, and seam wander and to achieve the necessary stability at the higher speeds that laser welding achieves.
The change in materials isn’t solely in automotive; a similar process is at hand in the energy market. Many specialized metals, especially duplex and superduplex alloys, are used in the oil and gas industry. As recently as 2007, the industry was using just five or six ferritic alloys, but these days many more are available, Mutschler said. They are often less expensive and provide better corrosion resistance than the austenitic steels they are replacing, but with one caveat. Like the stainless steels used for exhaust systems, their corrosion resistance benefits from the smallest possible spot size.
In addition to stable commodity prices and solid predictions for equipment and consumables sales, the PMI™ was showing signs of a strengthening 2014. In December 2013, the PMI was 57 percent and the New Orders Index was 64.2. In addition, Tripp and Hillis both think that Washington will have a little less influence on business in 2014.
“Business in 2013 was held back by a substantial tax increase, but the marketplace has become accustomed to this and has factored this into 2014 budgets,” Tripp said. “Also, they passed a budget for the first time in four or five years, so we don’t have to worry about that until September,” Tripp said. Hillis concurred that the budget passage may have been a turning point.
Quaker’s Conley expects the energy industry to continue to propel growth throughout the world, despite some regional disparities.
“Although some regions are getting more of the volume [of orders] simply because of where they are located, we see energy sector business continuing to increase,” she said.
The outlook isn’t all rosy—Tripp wonders how the Affordable Care Act will play out, and he noted that 40,000 pages of new regulations were added to the Federal Register in 2013—but on balance he is optimistic for 2014 on both sides of the Atlantic.
“The tax increase of 2013 is behind us, so that brought some certainty, and Europe seems to be on the mend,” Tripp said. “It’s not great, but it’s on the mend, but I think these two factors have put a little wind into our sails as we head into 2014.”
Location: Messe Düsseldorf
Dates: April 7 – 11
Show hours: Mon. -Thurs: 9:00 to 6:00 Fri: 9:00 to 5:00
One-day Ticket: 52 € Five-day Ticket: 92 €
Show directory for wire expo: 30 €
Show directory for Tube expo: 30 €
Show directory bundle: 55 €
Admission tickets include free round-trip transportation on the Rhein-Ruhr regional transport network (VRR).
See www.tube.de and click on Trade Fair Preparation under the Visitor Service tab to prepare a schedule.
*These are on-site prices. See www.tube.de and click on Registration & Tickets under the Visitor Service tab to order etickets and catalogs at lower prices.
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