Major market fundamentals behind global trends in tube and pipe market particularly for oil & gas industry applications (OCTG tubing and casing and line pipe markets) as of November 2014

1. Tube & Pipe Group
Global tube & pipe market: major trendsand implications on the market in Russia(November 2014)
Roman Filimonov
Consultant, Metal Bulletin Research’s Tube & Pipe Group
XVIIМЕЖДУНАРОДНАЯ КОНФЕРЕНЦИЯ
РОССИЙСКИЙ РЫНОК МЕТАЛЛОВ
10ноября 2014г.
Азимут Москва Олимпик

2. Tube & Pipe Group
Major fundamental factors affecting steel tube & pipe markets in 2014
1.Declining oil prices
2.Economic slow down in China
3.Growing barriers for international trade
4.Growing complexity for oil and gas production and usage of new technologies
Source: WTRG and MBR
GLOBAL TUBE & PIPE MARKETS
Brent crude oil North Sea spot

3. Tube & Pipe Group
Historically seamless steel pipe demand has a very similar trend to oil price
0
5
10
15
20
25
30
35
40
45
50
0
20
40
60
80
100
120
LHA: Crude Oil Price* ($/barrel)
RHA: Seamless tubes market (kt)
GLOBAL TUBE & PIPE MARKETS
R² = 0.9592
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
0
20
40
60
80
100
120
Source: EIA, ITA and MBR
Seamless tube & pipe demand vs oil price

4. Tube & Pipe Group
Some 98% of crude oil and condensates from the United States have a breakeven price of below $80 and 82% had a breakeven price of $60 or lower
Breakeven Thresholds For U.S. Shale Projects
AMERICAN MARKETS
Source: EIA & MBR
60
100
140
180
WATTENBERG TIER 2
EAGLEBLINE
PEMBINA
$/Bbl
80

5. Tube & Pipe Group
Seamless OCTG and linepipemarket remains strong in N.Americawhile in S.Americaparticularly in Brazil market is on decline
1500
1700
1900
2100
2300
2500
$/t
OCTG casing N80 (btc connection)
OCTG casing P110 (premium connection)
Source: MBR
AMERICAN MARKETS
0
10
20
30
40
50
‘000 t
Smls OCTG
Smls LP
•Oil price around $80/bblcould have severe consequences for drilling rates in Americas
•US shale development as well as Canadian oil sands production will be affected by sustained oil prices under $85/bbl
•Suspensions and cancellations in offshore drilling in Brazil has already caused Petrobrasto reduce OCTG purchases
•Brazilian OCTG exports have increased by nearly 50% y-o-y, adding competition to the global market
•MBR OutlookThe current OCTG price straightening in the USA may not last in 2015. In the S.Americamarket will continue to remain week into the 1Q 2015
USA OCTG prices
Brazilian OCTG and linepipeAC

6. Tube & Pipe Group
Most OPEC countries need oil price well above $90/barrel to balance their books. Nevertheless Saudi Arabia have enough reserves to cope with lower prices for some time
Source: WSJ and MBR
MENA MARKETS
$65
$70
$75
$90
$93
$98
$106
$117
$119
$121
$121
$140
$0
$20
$40
$60
$80
$100
$120
$140
Qatar
United Arab Emirates
Kuwait
Libya
Saudi Arabia
Angola
Iraq
Equador
Nigeria
Algeria
Venezuela
Iran
Estimated oil price needed to balance government budgets in MENA countries, USD/barrel
Nov. 7 Brent crude price $83

7. Tube & Pipe Group
Seamless OCTG and linepipedemand in the MENA region continues to be strong although prices are under strong pressure from material coming from China and Brazil
500
1000
1500
2000
2500
$/t
OCTG casing L80 (btc connection)
OCTG casing L80 (premium connection)
Source: MBR
MENA MARKETS
0
50
100
150
200
‘000 t
Smls OCTG
Smls LP
•MENA remains the most opened market in the world for any international competition
•Cheap material is increasingly coming from Brazil and China
•TPCO premium connections got approvals from ADNOC and KOC
•Saudi Aramco started to use interchangeable VAM connections from different producers
•Most MENA countries increasingly invest in gas exploration
•MBR OutlookIt is difficult to see OCTG price growth coming soon. Apparent OCTG demand is forecast to decline in a short term due to over-stocking in Saudi.
Middle East (Jebel Ali cfr) OCTG prices
MENA* OCTG and linepipeAC
* Aggregated monthly consumption in KSA, UAE, Kuwait, Oman, Qatar, Iran, Iraq, Egypt, Algeria and Libya

8. Tube & Pipe Group
Profitability of Chinese tube producers is on decline.
Anti-dumping cases against Chinese steel tube & pipe producers
N. America: USA, Canada
S. America: Brazil, Columbia
European Union
India
EEC: Russia, Belarus and Kazakhstan
Source: Baosteeland MBR
ASIAN MARKETS
7%
3%
2%
4%
2%
0%
1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
2007
2008
2009
2010
2011
2012
2013
Average gross profit margin for steel tube & pipe industry in China

9. Tube & Pipe Group
South-East Asian offshore projects are vulnerable towards low oil prices.
500
700
900
1100
1300
1500
$/t
OCTG casing N80 (btc)
Source: MBR
ASIAN MARKETS
•Week domestic OCTG demand in China coupled with international trade limitations is forcing producers to operate with minimum or no profit margins
•Cheap material with premium connections is coming from Brazil
•Total has accepted Chinese TPCO premium connection for their Indonesian operations
•The combination of predominantly offshore production with maturing fields in countries like Indonesia and Malaysia makes oil production costs one of the highest in the world
•MBR OutlookCurrent oil price could seriously affect some major high cost offshore projects resulting in decrease in OCTG demand. Price pressure from China and Brazil is likely to remain.
China export OCTG prices
MENA OCTG and linepipeAC
China domestic OCTG prices 7” –9 5/8”, RMB/t

10. Tube & Pipe Group
There is a strong concern that low oil prices (if remain longer) may affect E&P investments and production rates in Russian oil & gas industry
Main market factors in 2014
•Rouble depreciation makes commodity grade imports uncompetitive
•Low oil prices could lead to decline in E&P spending
•Significant investments within the last decade allow domestic producers to
•Comply with most demanding technical requirements and start penetration into such areas as offshore drilling and directional drilling
•Have enough capacity in place to keep up with growing demand
•Russian market is relatively closed
•Potential effects of sanctions
Source: Minenergoand MBR
RUSSIAN MARKET
3%
5%
92%
20%
50%
80%
0%
50%
100%
Offshoredrilling
Tight oil & gas
Conventionaldrilling
Local content
Share in production
MBR OutlookMBR is forecasting a mid-term growth for Russian seamless tube market within GARG 3 to 4 percent. We do not expect sanctions to make any strong impact over the same period on oil production and consequently seamless pipe demand. Low oil prices could have a serious negative effect, but unlikely to last for long time. Gas contracts with China will drive oil & gas development in E. Siberia and seamless demand.
Technologies localisation in Russian oil & gas industry

11. New tracker reports published by the Tube & Pipe team
Industrial and Structural Tube & Pipe Market Tracker, covering the market for HSS, mechanical tubing, precision tubing and standard pipe
Re-launched the Seamless OCTG & LinepipeMarket Tracker and the Welded OCTG & LinepipeMarket Tracker.
“I have read your trackers, this is really good stuff.” -Industry association
“The new Seamless OCTG & Linepipetracker has brought global OCTG analysis to a whole new level.” -Pipe division, Duferco
MBR’S TUBE AND PIPE TEAM

12. Tube & Pipe Group
Thank you for your time
CIS/SEA:
Roman Filimonov
Roman.Filimonov@metalbulletinresearch.com
Tel: +44 207 827 6443
Americas:
Kim Leppold
Kleppold@metalbulletinresearch.com
Tel: +1 610 404 0801
Europe/MENA/Asia:
James Ley
James.Ley@metalbulletinresearch.com
Tel: + 44 207 779 8521