Q4 Presents Cautious Optimism for PVF Sector

The PVF markets continue to see a revival in activity in the industrial market fostered in part by the rising price of oil.  As of this writing, WTI is at $50.51/barrel and Brent is at $56.11/barrel.  The balance between the “demand river” and the “supply river” for oil have narrowed, bolstering a modest upward trend.

In analyzing the supply/demand prognosis for oil, we find the demand for 2017/2018 is forecasted to be 97.7/million barrels per day (mmbd) for 2017, with a demand growth of 1.6/mmbd, a decline of supply of 2.4/mmbd, and an annual new supply needed for 2017 of 4.0/mmbd. 2018 is forecasted to be 99.2/mmbd, with a demand growth of 1.4/mmbd, a supply decline of 2.5/mmbd, and an annual new supply needed of 3.9/mmbd, which equates to an aggregate new supply needed of 7.9/mmbd.  These figures were used by Charles Cherington, co-founder, Argus Energy Managers.

This scenario indicates a stabilizing price for oil near the current levels, and a long-term trend of escalating prices due to the reversal of the dynamics of supply and demand with the “demand river” exceeding the “supply river.”

The unknown variables that impact the supply/demand dynamic are the political issues that confront our nation.  The situation in North Korea, Iran, Nigeria and Venezuela can have dramatic effects on the supply side of the equation.

In addition to oil, natural gas is having a dramatic impact with the demand generated by the conversion of power generation to natural gas and the global demand for liquid natural gas (LNG).

The demand has generated the need for the construction of new pipelines to transport the media from production to market.  In an article by Morris Beschloss in “The Beschloss Perspective,” the overall outlook for extensive expansion of oil and natural gas has been exceptionally embraced by the Trump administration.  In looking forward to 2018 and beyond, the primary energy sector as a whole, especially natural gas, appears to be a safe PVF market for years to come.

President Trump’s removal of repressive regulations; the rebuilding of facilities damaged by Hurricanes Harvey, Irma and Maria; the conversion of power plants to natural gas; and the expansion and retro-fit of the pipeline infrastructure have caused the demand for PVF products to increase sharply.

The increase in demand for carbon steel butt welding fittings and forged steel commodity flanges, along with the increases in the cost of production (material, electricity, labor and health care), have made a price increase for commodity forged carbon steel flanges necessary.  The new pricing became effective in October 2017.

While additional increases for carbon steel butt welding fittings and forged steel flanges are not anticipated at this time, you are encouraged to check regularly with your suppliers for possible adjustments going forward on a regular basis.

As of Oct. 5, petitions and required copies have been filed with the U.S. Department of Commerce for the Imposition of Antidumping and Countervailing Duties for forged steel fittings from the People’s Republic of China, Italy, and Taiwan.

The filing has been made on behalf of Bonney Forge Corp., the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial, Service Workers Union, and registered with the International Trade Commission.

Construction starts year-to-date by region were led by the Pacific region, which was up 22 percent; followed by New England, plus 19 percent; South Atlantic, plus 15 percent; Middle Atlantic, plus 7 percent; Southwest Central, plus 2 percent; Northeast Central, minus 3 percent; Southeast Central, minus 5 percent; and Northwest Central, minus 16 percent.  Construction starts were led by non-residential construction.

Northeast Region

The U.S. Northeast has $11.5 billion in fourth quarter starts.  Natural gas-fired power projects are the second largest projects by total investment value.  Two natural gas-fired power projects — the $950 million Hickory Run Energy Station project in New Castle, Pennsylvania, and NRG Energy’s $320-million Canal Power Station project in Sandwich, Massachusetts — account for more than 10 percent of the TIV.

The Pharmaceutical and Biotech, as well as the Food and Beverage sectors, have strong showings with $100 million in fourth quarter kickoffs, which includes the Luitold Pharmaceuticals’ $50 million manufacturing facility in Shirley, New York, and Clearwater Organic Farms’s $50 million hydroponic spinach greenhouse in Rochester, New York.

Mid-Atlantic Region

The Mid-Atlantic is slated for $10 billion in fourth quarter startups led by natural gas pipelines accounting for more than one-third of total investment value.  Those projects include, $38 million in additions and modifications at a station in Louisa, Virginia, $10 million in modifications to the Goochland station in Manakin Sabot, Virginia, and $8 million in modifications at the Boswells Tavern station in Gordonsville, Virginia.

Power generation follows pipeline total investment value led by Duke Energy Corp.’s $600-million-unit addition to the Asheville Power Station in Arden, North Carolina.

Southeast Region

Duke Energy Corp.’s $750 million addition of a natural gas-fired unit to the W.S. Lee Power Station in Beaton, South Carolina leads the regional projects starts in the fourth quarter.

In Georgia, the terminals in Brunswick and Savannah, Georgia are continuing to make progress in recovering from hurricanes Irma and Maria that forced the shutdown of the following terminals:

•    Colonial Terminals, Inc.’s refined products terminal in Savanna, Georgia

•    Emerald Petroleum Co., Inc.’s petroleum products terminal in Savannah, Georgia

•    Phillips 66’s petroleum products terminal in Savannah, Georgia

•    Blackwater Georgia, L.L.C. Chemicals products terminal in Brunswick, Georgia                                                                                       

Southwest Region

SeaOne Holdings, L.L.C. plans to start construction on a $450 million compressed gas liquids storage and export facility in the Port of Gulfport, Gulfport, Mississippi.

In Port Barre, Louisiana, Hazelwood Energy plans to begin construction on a grassroots crude oil blending facility.  The project will include six oil storage tanks and four salt dome caverns to store and blend 10 different types of crude.

Midwest Region

The U.S. Midwest is set for more than $11 billion in fourth quarter starts.

One of the largest projects is Microsoft Corp.’s data center in West De Moines, Iowa.  The first phase scheduled to begin construction is 425,000 square feet of building space for a four-data-server building and supporting equipment.

Construction is set to begin on the U.S. Steel Corp. and Kobe Steel Ltd. new continuous galvanizing steel line at their PRO-TEC Coating Co. joint venture in Leipsic, Ohio.  Total investment value is projected at $400 million.

Pacific Region

One of the leading projects in terms of total investment value is Apple’s $1 billion grassroots data center in Reno, Nevada.  The complex includes eight buildings totaling 372,893 square feet.

In California, Nokola Motor Co. is scheduled to start construction in the fourth quarter on a 50,000 unit -per-year electric truck assembly plant.  Total investment value is projected to be $1 billion.

NRG is planning to begin construction on a $248.9 million repowering of the Mandalay Generating Station in Oxnard, California.  Two existing units will be removed and replaced with a simple-cycle plant.

Andeavor Corp. (formerly known as Tesoro Corp.) begins clean products upgrade at its refinery in Anacortes, Washington.  Total investment value is projected to be $190 million.

After many years of economic uncertainties, burdensome regulation and policy setbacks, the PVF sector is upbeat in its assessment of demand and output moving forward.  Manufacturers are cautiously optimistic that many of the policies they have been seeking, such as pro-growth tax reform, healthcare reform, major infrastructure programs and regulatory relief will become a reality under the current administration.