In March of this year, we distributed a letter, written to help you plan for the coming months and to share with your customers regarding the increase in the price of pipe. In June, we distributed another letter with an update on market conditions. In that letter, I described conditions that would impact the market in the second half of 2021 and into 2022. In this letter, I hope to provide you with look at the latest market conditions and insight into what you can expect in 2022.

Before that, let’s look at how we did with our earlier predictions. 

Back in March, we issued a general statement on price increases that described several real market conditions driving high prices and shortages throughout the pipe industry.  We predicted that prices would continue to rise and would remain high through the end of the year.  We cited several reasons, including:

• Hot rolled coil prices – These were high then and remained high for much of 2021 but have finally started to trend back down. They remain up about 50% from 2020 levels but are down from the peak of around $1300/ton to about $900/ton today.
• Ocean freight pricing – We described the rates as being triple the long-term average for containers at $6000. Today, those rates have grown more than expected with prices as high as $20,000 for a 40 ft container for some shipping lanes.  Many mills have responded by moving to bulk shipments, but bulk shippers have been overwhelmed with the additional volume and have raised those prices as well.
• Korean dumping duties – These remain in place and are not expected to go away any time soon.
• Port congestion – We described port delays of as much as 6 weeks. We have seen news articles about these port delays, showing long lines of ships waiting around the ports.  The ports have responded by moving the vessels further out to sea, citing safety concerns, but this is probably just a move to avoid the bad press that comes from reporters being able to photograph all those waiting ships.  The ports have increased their hours to work through some of those containers, but this has created a bottleneck at portside storage facilities and in inland trucking. 
• Price increases from the mills – We described Covid-19 related production delays and shortages which caused mills to raise pricing. In March, prices had risen 45% in 4 months for imports and 28-35% for domestic material. Since then, prices have continued to rise, a total of more than double for imports and around 60% for domestic. 

In June, we gave an update on market conditions and predicted that high steel prices and supply constraints would persist well into 2022.  We added high freight rates to the list of reasons for rising prices and gave a few examples of specific situations that might drive up prices and create shortages in the future.  Freight rates and fuel prices continue to be extremely high as we exit 2021.  We are also seeing even longer delays at the ports, and situations where port storage facilities and truckers are refusing to accept new freight because they are so overwhelmed.

For 2022, the signals are mixed, but I believe it is still possible to make a reliable prediction.  I expect that as we enter 2022, we’ll see a short-lived dip in pricing with abundant inventory, followed by a return to the current elevated pricing and possibly even incremental increases that will persist until around June.  Unless something new upsets production, we can expect a slow retreat of pricing after that.  I predict 2-4% decreases each month from July through the end of the year.  Here’s why:

• With holiday related surges in imports over and a break for Asian mills around Lunar New Year, the ports should be able to catch up and the congestion is likely to improve. This will break the logjam and distributors will get a flood of inventory that we have all been waiting for.  This may not last, however, because the longshoremen are entering contract negotiations in early 2022.  With wage increases running generally high right now and with national labor shortages, look for the union to swing for the fences, with the likely result being labor disruptions at the port in Q1.
• Korean mills had a slower than expected year in 2021 and wanted to max out the 2021 quota by shipping pipe to arrive in December. As a result, they have shipped a lot of material early, pulling in some orders that were scheduled for April delivery, leaving pipe distributors with more material than expected before year end.  Distributors may struggle with space and cash flow constraints and may be willing to sell at lower pricing to liquidate some of the excess.  They won’t be able to get too cheap because the cost of this pipe is very high compared to what we bought earlier this year.
• Everyone is seeing higher costs. By now, you have heard talk of persistent high inflation.  Pipe distributors and manufacturers are experiencing higher costs for fuel, freight, wages, services, and consumables.  These will all make their way into the delivered cost of your pipe eventually.
• Ocean freight carriers will negotiate even more increases in pricing in their annual contracts for 2022. This will increase the cost of imported steel, which domestic suppliers will use to increase pricing as well.  These small increases will hold unless supply is greater than demand, in which case, the mills and distributors will start to absorb these extra costs.
• Mills are quoting a few cents cheaper for material arriving in May 2022 and lead times are decreasing. This tells us that their sales for the first half of 2022 have been soft and mills are ahead on production.  They are likely to lower prices a little more for June arrivals when they quote next month.

Given these market conditions, my advice to any customer that can hold inventory is that January is likely to be the best time to buy in the first half of the year.  Now is probably a good time to load up on key movers.  From February through May, pricing is likely to rebound and stay elevated, with moderate increases.  It would be wise to keep inventories lean through this period.  After that, prices may start moving downward, but given the last couple of years, I wouldn’t count on it.  We’ll do our best to keep you posted as new information comes in.  As a small pipe distributor, we don’t control the pricing in the market, but we will do our best to keep inventory in stock for you, our valued customers, and to keep our pricing as competitive as possible.  I wish you all success in the coming year and as always, feel free to reach out to anyone on our team for the latest information on what the steel pipe market is doing.

Sincerely,

John Peery
President

Cal Sierra Pipe, LLC
209-466-0988