Dear Valued Customers,

The third quarter of 2022 is in the books, and to summarize it in just a few words, it was “an accumulation of economic bad news”. The headlines from the past few months are all about Fed tightening, rising prices, looming recession, and increasing geopolitical risk. Conditions specific to pipe are addressed below, but first, I offer a recommendation that most of your suppliers probably would not. I advise you not to buy pipe right now, even though I’d love to sell it to you. Here’s why:

»    High inventories — With port delays and vessel shortages in the first half of the year, much of the import steel pipe was late, meaning distributors had to buy it out. While waiting for delayed shipments, distributors bought pipe from domestic sources, salvage sources, or competitors to fill in for late shipments. We still had to take the late shipments. When the supply chain catches up, we end up holding a ton of pipe. That is what is currently happening to us and many of our competitors. That means there is a lot of excess pipe on the ground right now and distributors are aggressively trying to move it.

• Falling steel price — Globally, scrap prices have been falling for months, but the lower raw materials costs were not reflected in the finished pipe pricing because the demand was high, and mills could command higher With demand softening and raw material costs decreasing, the mills are finally being forced to lower their prices. As an importer, I’m buying for March right now and I can tell you pricing for January is cheaper than pricing today. Pricing for February is even cheaper. Pricing for March is back up a bit, but if the mills don’t meet their sales targets, the March rebound won’t hold. If the distributors don’t burn off the excess inventories mentioned above, the mills will have to reduce pricing even further.
• Rising interest rates — All indications are that interest rates will continue to rise into 2023. Pipe distributors and traders rely on credit to finance their inventory. With higher rates, comes more pressure to reduce inventories. If distributors try to reduce inventory, the mills will perceive the market as being softer than it is and will reduce prices to generate more sales volume. This will make its way all the way down to the pricing for end
• Looming recession — A recession will find its way into top-line sales for most businesses, but even if an economic downturn doesn’t occur, just the threat of it will affect our decision In that regard, it can become a self-fulfilling prophecy. If we see a downturn in construction or if we see farmers and other end-users slash their capital expenditures budgets, we will react try to reduce inventory with lower pricing. If we are pessimistic about the outlook for next year, we will buy more conservatively. That is exactly what is happening in the pipe industry today, but it takes time. Pipe distributors report that they expect pricing to fall and sales to shrink in the coming year.

As we wind up 2022, I recommend that you buy only what you need and resist the urge to stock up on inventory just because the material is cheaper than in prior months. I predict that the pricing by January will be as much as 10% cheaper for grade B and 30% cheaper for grade A pipe than it is today. Pipe will be abundant through the rest of 2022. Supply chain disruptions are mostly resolved, and I don’t expect any more, at least not of the magnitude we’ve experienced since 2020. Pipe will ship on time or even early going into next year. Beyond the first quarter, demand will determine what the pricing does, but for now, wait as long as possible to buy steel pipe and PVC.

Sincerely,

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