Dear Valued Customers, I’ve been writing these market updates for a year now, and each time, I have predicted some upcoming market disturbance that is likely to resolve in the coming 3-9 months. Each time, the resolution has pushed out a little bit further than predicted. This quarter, we are finally getting closer to the light at the end of the tunnel. For the third quarter, I predict favorable conditions for buyers that will become slightly less favorable in Q4. 

If you can hold inventory, I recommend buying it now, because inventories on the ground are strong and pricing is likely to be the lowest that we will see all year. Import inventory landing in Q4, particularly in Gr. B will be higher cost than material that landed in Q2 and Q3. If demand holds, pricing will increase from August through the end of the year. If you don’t buy in Q3, it would be wise to hold off until January because prices are likely to fall after year end. Below are the key drivers of this prediction. 

• Ports – West Coast ports are beginning to resolve their congestion, according to news reports. Anecdotally, I have not seen much change, but there are signs that improvement is coming. I’m still experiencing vessel and unloading delays, but the off-port sorting yards are starting to take new work again. That tells me these yards are starting to have available capacity. Progress may stall, however, because of a trucker protest underway at the Port of Oakland that may spread to others. They are protesting AB-5, the bill that passed in 2019 which requires freelance workers to be classified as employees. In addition, the union contract with port workers has expired and they are currently in negotiations. Union leaders have promised that they will not strike, but that does not prevent local groups from initiating a work slowdown. This happened the last time port workers were in contract negotiations and the delays were devastating. Both the protest and the union negotiations could cause significant delays. One thing working in our favor is that many large retailers brought in heavy inventories earlier than normal, so Q3 and Q4 landings should be lighter than normal. 
• Korea – The Korean mills are subject to a cap on what they can ship to the United States and the cap has been met for 2022. They have either refused to quote for Q4 arrivals, or quoted very small tonnage at high prices. As a result, Grade B pipe from Korea will be very limited after September, and most distributors will not get much for the rest of the year. There are alternative sources, but they are much more expensive. If demand holds strong through year-end, prices will be higher in November and December. There are signs that demand is softening, but even if that continues, distributors will be working from higher costs and will likely increase pricing. 
• Vessel Space – Low prices today are driven in large part by a lack of vessel space from earlier this year. Material that has been stuck in overseas ports for lack of vessel space since March has finally shipped and landed in the US, along with material that could not ship in April and May. As a result, distributors are landing huge quantities in July at low costs. We will be lowering pricing as this material lands but will have to raise prices again once the next round of higher cost material hits in August and September. Because vessel space has been unpredictable, it is likely that distributors will be in and out of stock on many items for the rest of the year, particularly with Gr. A pipe.
• Fuel Prices – We have seen some relief on fuel prices, but not enough, so this will continue to inflate the landed price of pipe. I don’t expect a dramatic improvement in this any time soon. Interest rates – The steel pipe business relies on huge credit lines to finance wildly fluctuating inventories. With steel prices high, and with long delays getting material off of ports, many traders and distributors are likely to be stretching their credit lines. New credit will not be cheap, and those with variable rates, may see steep increases in interest expense. This will incentivize distributors to be even more conservative. This coupled with lower cost steel on the horizon and the potential for softening demand, is likely to keep inventories on the ground very lean through the end of the year. 

I hope that the second half of 2022 is as strong as the first half, but the experts are throwing around the “R-word” a lot these days. It seems that a recession is on the horizon and if demand falls sharply, importers will not be able to correct quickly. The result would be low prices and abundant inventory through the end of the year. My advice is not to rely on that. Right now, inventory is abundant and cheap, relative to the first half of the year. If you can find it now, buy it. After that, cover what you must through the end of this year and seek to exit the year with lean inventories. That’s what I’m going to do. I wish you all the best of luck in Q3, and I hope your businesses are going strong. 

Sincerely,
John Peery
President
Cal Sierra Pipe, LLC
209-466-0988