Future China seamless tube export outlook

1. China's seamless pipe exports and crude oil prices remain highly correlated

From the perspective of China's seamless pipe export structure over the years, China's seamless pipe average annual export volume before 2020 to maintain more than 4 million tons. 2020 affected by the epidemic, global supply chain setback, overseas seamless pipe demand contracted sharply, global energy prices fell rapidly, 2020 global crude oil average price and seamless pipe exports for nearly 5 years low, After the slow growth of the global economy, energy prices began to push up, overseas demand showed a certain growth, China's seamless pipe exports gradually increased, the average price of crude oil in 2022 hit a new high, and the annual seamless pipe exports are expected to return to a new five-year high level.Entering 2023, energy prices remain at a high level. At present, the global energy industry profits maintain a high level, energy mining investment has remained high, so the global demand for seamless steel pipe has remained high. It can also be seen from the figure below that crude oil prices and seamless steel pipes maintain a strong positive correlation, which is also one of the core factors that 2023 China's seamless pipe exports can maintain "soaring", and it is expected that international crude oil prices will remain high and volatile in the later period.

Figure 1: Seamless pipe export quantity and crude oil price from 2008 to 2023 (unit: 10,000 tons, yuan)

2. The RMB exchange rate is highly correlated with China's seamless pipe exports

Due to the impact of high inflation in European and American economies, the Federal Reserve officially announced an interest rate hike on March 16, 2022. By November 2023, the Federal Reserve maintained the target range of the federal funds rate at 5.25%-5.5%, the global liquidity contracted rapidly, and the US dollar index maintained a relatively high level, rising to 114.778. Most of the world's financial assets have fallen to varying degrees this year, and currencies around the world have depreciated, with the euro once falling below 1 against the US dollar. This year, the RMB has depreciated nearly 10% compared with the beginning of the year due to the impact of the domestic and external environment.As can be seen from Figure 2, the RMB exchange rate is highly negatively correlated with seamless pipe exports. This year, the depreciation of RMB is accompanied by the decline of domestic seamless pipe prices, and the relative advantage of domestic seamless pipe export prices stimulates domestic seamless pipe exports to a certain extent. The RMB exchange rate may be difficult to quickly change throughout the year, which has a certain stimulating effect on domestic commodity exports.

Figure 2: Seamless pipe export quantity and RMB exchange rate from 2014 to 2022 (unit: 10,000 tons, yuan)

2. The operating status of mainstream pipe factories reflects strong external demand

TMK、Tenaris、Vallourec,the world's three largest steel pipe manufacturers, have an annual steel pipe capacity of more than 3 million tons. Among them, Tenaris shipped 2,222,000 tons of pipes in the first half of 2023, an increase of 29.8%; Among them, the volume of seamless steel pipe shipped 1.684 million tons, an increase of 6.1%; H1 operating revenue of $8.216 billion, an increase of 59%, of which net profit of $2.265 billion, an increase of 99%, net profit margin of 27.6%, higher than the historical best of 26.5% in 2008. Vallourec shipped 1.804 million tons of seamless steel pipes in the first half of the year, an increase of 10%, operating income of 2.696 billion euros, an increase of 30.9%, of which oil and gas and chemical market revenue of 2.06 billion euros, an increase of 53%, mainly from North America. The mainstream domestic seamless pipe export enterprises (Hua Ling Steel Tube, Changbao Steel Tube ect.) continued to maintain year-on-year profit growth, Changbao Company achieved operating income of 3.459 billion yuan, an increase of 25.93%; Net profit attributable to shareholders of listed companies was 450 million yuan, an increase of 150.60%.From the perspective of the operating conditions of mainstream seamless pipe enterprises at home and abroad, the demand for seamless pipe in overseas markets in 2023 still has "resilience".

3. China may become a relatively stable supplier with frequent global geopolitical conflicts

Since 2022, global geopolitical conflicts have occurred frequently, the great power game has intensified, the original global industrial chain and supply chain have been broken, and Russian steel pipe production has decreased by 4.2 million tons in 2022, down 33%, and some Russian export orders have been transferred to other countries. In addition, the economy of some developing countries in the world (mainly in Asia) has slowly recovered from the epidemic, the manufacturing margin is good, and imported steel pipe orders are more willing to find domestic stable suppliers, coupled with the competitive advantage of China's steel pipe prices. This year marks the 10th anniversary of the Belt and Road Initiative.Over the past decade, the Belt and Road Initiative has become an important platform for China to participate in global opening-up and cooperation, promote common development and prosperity of all countries, improve the global economic governance system, and work with all parties to build a community with a shared future for mankind. It has a certain boost for China's seamless pipe export in the later period.

In summary, under the influence of multiple uncertainties this year, China's seamless pipe exports still maintain "toughness", it is expected that China's seamless pipe exports in 2023 will be about 5.5 million tons, an increase of about 12.22%, the number of seamless pipe exports throughout the year is expected to break through a record high, and the volume of China's seamless pipe exports in the later period is worth looking forward to. However, the road to high-quality development needs to continue:China's imports of seamless pipes are mainly imported from developed countries such as Japan, South Korea, Germany, the United States, Italy, etc., this year's average import price of more than $9,000 / ton, while the average export price of seamless pipes is only more than $1,000 / ton. At present, in some high-end areas, there is a certain gap between the quality stability of China's seamless steel pipe products and the products of foreign advanced enterprises (including composition deviation, dimensional accuracy, surface finish, performance deviation, service life, etc.), but the average price of China's exports began to increase year by year in 2016, and the self-sufficiency rate of some high-end varieties has improved. Reflecting the seamless pipe in the high-end field of China is gradually integrating with the world and steadily improving.

Figure 3: China's seamless steel pipe export volume change from 2016 to 2022 (unit: 10,000 tons)