Tubular manufacturers are finding synergies in mergers and joint ventures.
NKK and Kawasaki Steel have entered a memorandum of understanding with the intention of combining their steel-making operations, including oil country tubular goods (OCTG). The companies plan to establish a joint holding company through a stock transfer by October 2002, and both firms will become wholly owned subsidiaries.
It all began in April 2000, when both companies agreed to cooperate in their procurement, maintenance and transportation operations at their four steelworks in Japan. Since then, the companies have expanded their alliance through joint programs for cost reduction.
"Amid a wave of global consolidation of major industries and expansion of globally integrated procurement policies, NKK and Kawasaki Steel came to agree that consolidation is the best strategy in order to provide customers with the highest quality products and services worldwide and further expand business," claimed a front-page article in the June 2001 issue of NKK News.
Lone Star buys North Star
Dallas, Texas-based Lone Star Technologies Inc. recently beat out Maverick Tube Corp., the largest North American producer of welded tubulars, to acquire the North Star Steel Co.'s Tubular Steel Division from Cargill Inc. for US $430 million. The North Star Steel Tubular Division includes an electric-arc furnace minimill in Youngstown, Ohio, and a tubular goods end-finishing facility in Houston, Texas, both of which have been upgraded and expanded recently. In 2000, North Star Steel's Ohio plant completed a $30 million expansion to increase annual production capacity from 480,000 tons to 650,000 tons by installing a new Fuchs AC electric-arc furnace and ladle-metallurgy furnace. North Star also completed a $2.3 million expansion of its finishing facility in Houston, which threads, couples, heat-treats and hydrostatic-tests seamless casings, boosting its capabilities from 300,000 tons to 370,000 tons per year.
North Star's parent company, Cargill, was one of the four founders of The Global Steel Exchange (GSX), an independent e-commerce site trading steel on the Internet. The exchange was the first to offer online financing, risk management and logistics. In October 2000, 11 mills - three in Korea, one in Taiwan and seven in the Commonwealth of Independent States - joined the original four partners, who had pledged to do $2 billion worth of business transactions on the site. The 11 new mills pledged to export $3 billion worth of steel products through GSX during the next 2 years with the purpose of increasing efficiency, reducing costs and reaching new overseas customers.
And what GSX has done for steel, Tenaris is doing for steel tubulars.
Tenaris: 3 + 5 = 1
In 1996, the DST alliance was formed with seamless steel tube manufacturers Dalmine of Italy, Siderca of Argentina and Tamsa of Mexico. Because it had grown through acquisitions to include NKK Tubes of Japan, AlgomaTubes of Canada, Tavsa of Venezuela and welded pipe makers Confab of Brazil and Siat of Argentina, the DST alliance had outgrown its name. So April 30 it relaunched with the new name of Tenaris, from the Greek word for the muscle that enables the hand to grip.
Tenaris is a brand, not a corporation. Members of the alliance hope to reduce costs by redesigning the supply chain and integrating global manufacturing, procurement, distribution and customer service processes using e-business solutions. Tenaris can embark on special projects that no single mill could do. Associate services will be integrated for efficiency.
Tenaris plans to expand its range of specialized products, enhance its logistics capabilities to deliver pipes on a just-in-time basis, and provide field services at the point of use. Combined production capacity is 3 million tons of seamless and 850,000 tons of welded steel tubes - about 34% of the world market for OCTGs and 20% of the overall seamless pipe market.
Each mill will mark its own tubes with its own name, but use the multibar Tenaris logo. Tube protectors will be green and also have the Tenaris logo. TenarisConnections will integrate several families of premium connections for the OCTG market, and TenarisTracking will allow customers to follow the complete trail of the their tubes from manufacture to the final destination via Internet.
Fiberglass tubes, too
Steel tubular manufacturers aren't the only ones consolidating; fiberglass tube makers are hooking up as well. Oilfield equipment maker Varco International has acquired Fibercast, Denali's fiberglass pipe and fittings manufacturing operation based in Tulsa, Okla. Varco, which has dual headquarters in Houston and Orange, Calif., plans to consolidate Fibercast and its 135 employees with its Star and Smith fiberglass product lines. This will increase Varco's total sales for fiberglass tubular products to about $100 million per year.
Effect on prices
The overall effect of these consolidations and alliances probably will not be increased prices. I think OCTG prices will stay about the same, while improved services like delivery logistics and Internet tracking will make it easier to order these products, especially if mills are running flat out to supply enough drill pipe to match the rising rig count. If one mill can't fill an order, perhaps a partner or another subsidiary can, and the buyer only needs to deal with a single sales rep. And that's always a blessing.