The market was faced with a serious degree of overcapacity in 2015. Due to the high increase in demand in the previous decade, many mills invested in expanding capacity that only came on-stream in the last few years. The current global production capacity is now greater than the global demand, that has furthermore since stagnated. China represents almost half of the global capacity. The export of steel from China creates a downward pressure on global prices.
In 2015, most welded pipe producers within the industry sector experienced a minor growth in volume. However, the disappointing growth in China and the overcapacity in the welded pipe segment caused prices to be under pressure. Improvement in this situation in 2016 is in part dependent on the phase-out of steel production capacity in China, the implementation of anti-dumping measures, and the further development of oil prices.
The production capacity of carbon steel seamless pipes has increased tremendously in recent years due to the rapid development of shale gas and oil exploration, particularly in the United States, and the increasingly greater depths in the search for crude oil. The considerable decline in oil prices has caused a strongly decreased demand for seamless pipes, resulting in a significant global overcapacity and a tremendous pressure on prices. Producers have created restructuring programs designed to bring demand and supply back into balance. However, the recovery of this balance is in part dependent on the recovery of demand through economic growth or an increase in the price of oil.
In addition to overcapacity in the market for stainless steel products, there was a drop in the price of nickel and molybdenum, both important elements of stainless steel. The average price of stainless steel materials dropped by 20%.
Producers of welded, as well as seamless pipes are running into serious problems throughout the world due to the drop in demand and the decrease in selling prices. It is expected that these producers will have to take drastic measures in 2016, in order to safeguard their continuity. Reducing capacity by closing a number of pipe mills is a serious option. The further consolidation of steel mills in China seems unavoidable.
Due to the overall decline in prices, stock-keeping pipe distributors throughout the world were confronted with a significant reduction in the value of their stocks. Van Leeuwen was affected by this as well. By increasing the stock turnover ratio of specific stocks and keeping stocks relatively low, we were able to limit any negative effects. In Europe, the interchangeability of our products combined with our well-organized commercial and logistics network were of key importance.