The PVF market has entered the third quarter of the 2016 calendar year still reeling from a depressed industrial market, this from the pressures created by the persistent low price of oil currently at slightly below $50/bbl. Capex spending is either being extended or cancelled as OPEC is continuing to keep output at a high level. This, coupled with Iranian oil being added to the market at a rate of 500,000 barrels per day (anticipated to increase to 1 million bpd) continue to impact the market by keeping supply higher than the global demand.

U.S. upstream employment lost 100,000 (production and exploratory) jobs year-to-date in the Texas market alone as drilling has been diminished, due to oversupply and soft pricing. U.S. crude inventories have fallen by 4.1 million bbl (Strategic Petroleum Reserves excluded) as of the end of June 2016. 

Kinder Morgen has thrown in the towel on a major Capex project “Northeast Direct Pipeline” and on Constitution Pipeline’s denial of a water permit by New York State. 

On the brighter side, John Hofmeister, former CEO Shell Oil Company (2005-2008) stated in an interview On Straight Talk Money that he thinks the world continues to consume 94-95 million bbl. He questions trust of supply-side information seeing a lack of trust increasing as the year progresses. Hofmeister believes we are to witness a probable robust oil price moving through the second half of 2016. 

We may be seeing early signs of Hofmeister’s observation as U.S. drillers added nine rigs in June, marking only the second time that the U.S. rig count has increased this year second half of 2016. In addition, sustained E&P spending cuts may lead to underinvestment. Maintaining sufficient oil and gas reserves is a good strategy for exploration and production companies. 

However, a lot of capital will be required to bring reserves into production. E&Ps have reduced spending drastically (25 percent in 2015 and an additional 27 percent announced for 2016). These cuts have reduced spending to below the minimum required levels to offset resource depletion, let alone, what is needed to meet any expected growth. This is another factor that will exert upward pressure on the price of oil and gas as the year progresses.

Sluggish demand is resulting in the cost of basic raw materials required that are for the production of carbon steel butt welding fittings and forged steel flanges to remain stable and readily available. Therefore, pricing is expected to remain stable for the remaining part of the third quarter. The dramatic reduction in pricing for forged carbon steel flanges during the second quarter was market driven, this was countering the influx of underpriced offshore material. Therefore, no changes are expected during the duration of the third quarter. 

On June 30, two leading producers of forged carbon steel flanges, WELDBEND and BOLTEX filed petitions with the United States Department Of Commerce and the United States International Trade Commission charging that unfairly priced and government subsidized imports of forged carbon steel flanges from India, Spain and Italy are causing material injury to the domestic industry. It is hoped that the U.S Commerce Department and the ITC will take remedial action.

Food and beverage industry 

Prices for all major meat-based categories have been falling since 2014, along with poultry prices since 2015. Significantly lower commodity prices have become an inducement for investment in food and related production.  The top states that are experiencing investing are: California ($272 million), Kentucky ($210 million), Missouri ($150 million), Wisconsin ($140 million), Arkansas ($124 million), Indiana ($119 million), Michigan ($111 million) and Illinois ($97 million).

U.S. manufacturers 

U.S. manufacturers now anticipate sales growth of 1.6 percent, and expect full-time employment growth of 0.2 percent over the reminder of the year. There are nearly 1,300 active U.S. manufacturing projects valued at $77.5 billion that are slated to kick off over the rest of the year. Nearly 56 percent of manufacturers reported intent to increase capital investments and expenditures if the cost of regulatory compliance were reduced. (Industrial Info Resources Publication 6/24.)

Southeast region 

A 45-acre site in West Atlanta, Ga., was the chosen site for Lincoln Terminal Co.’s new biofuels distribution and rail terminal. Lincoln Energy Solutions (LTC’s parent company) has been increasing its ethanol and biodiesel transportation services over the last five years.

Plans for the new Atlanta terminal include six large storage tanks and a 90-car unit-train delivery facility with 24-hour unload capability. Construction is expected to commence during the later part of the third quarter or early fourth quarter.

Lincoln Terminal Co. has also acquired a new 130,000 barrel storage, distribution and unit train terminal in Charlotte, N.C. that is tied into biofuel markets in Northern Virginia and Washington, DC.  

Southwest region 

Louisiana, Texas, Arkansas, and Oklahoma are scheduled for third-quarter starts with a total investment value of more than $3.2 billion. LACC Limited Liability Co., a joint venture company formed by Axial Corp. and Lotte Chemical Corp. is scheduled to start construction during the third quarter on an ethane cracker project in Westlake, La. valued at $2 billion. A $100 million Oxiteno USA LLC’s Ethoxylate Surfactants Unit expansion in Pasadena, Texas, Chemours Company LLC’s Hydrofluoroolefin Unit expansion in Corpus Christi, Texas valued at $100 million. Also, Formosa Plastics Corp. Olefin Unit 1 furnace addition valued at $100 million in Point Comfort, Texas is scheduled to begin construction in the third quarter.

In addition U.S. refiners plan third quarter turnarounds despite tighter margins. Valero’s delayed Coker Unit 1 turnaround valued at $15 million in Port Arthur, Texas, CITCO’s Reformer B and Reformer Feed HT B Units turnaround at Lake Charles, La. valued at $15 million and Marathon’s Unit 215 turnaround valued at $12 million located in Garyville, La., plus Valero’s Crude and Vacuum Unit in Ardmore, Okla., valued at $12 million are all scheduled for the third quarter.

Great Lakes region 

Two fertilizer-related projects located in Mount Vernon, Ind., are part of a fertilizer complex comprised of two units each unit valued at $900 million are scheduled for construction during the beginning in the third quarter.

Northeast region 

Delaware, New Jersey, New York and Pennsylvania have 168 active projects with a combined investment value at $7.7 billion that are scheduled for new and upgraded life science manufacturing plants. New York continues to attract most of the regional investment with a total investment value (TIV) of $5.1 billion, followed by Pennsylvania at $1.3 billion TIV, New Jersey at $1.1 billion TIV and Delaware at $105 million. In addition New Jersey will see a $12 million turnaround at Valero’s FCCU and HF Alky Units in Paulboro, N.J.

Northwest region 

The California-based Meridian Energy Group is moving forward with plans in the third quarter to construct the largest grass roots refinery built in the U.S. since 1976. The Davis Refinery is located in North Dakota near the Bakken shale play and will process up to 55,000 barrels per day.

West Coast region 

Washington, Oregon and California have 23 projects representing a total investment value of $1 billion scheduled to begin construction during the third quarter. These projects consist of capital and MRO projects in the life sciences sector. 

This election year bodes optimism and well as skepticism for the combined energy and construction industries. The newly elected president and the resultant House and Senate control will affect the resulting policy direction for the energy industry and related construction industries that are critical to our future. As for the rest of the third quarter, expect demand for carbon steel welding fittings and forged steel flanges to continue at the present sluggish pace.