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9th December, 2009
PIPES INDUSTRY OVERVIEW Pipes are manufactured mainly from steel, concrete and plastic, with steel pipes having the largest demand potential in the near future. Although concrete pipes are used more in irrigation systems, sanitary sewers and storm drains, plastic pipes find applications in water mains, drainage, irrigation, fire sprinklers, etc. Steel pipes are preferred for longdistance high‐pressure transportation of oil, gas and water. THE PIPE PIPERS
Key players and areas of operation
Types of Pipes Seamless HSAW LSAW ERW DI/CI Size Raw Materials Indian Players Maharashtra Seamless, Indian Seamless Tubes, Jindal SAW Jindal SAW, PSL, Welspun Gujarat, Man Industries Jindal SAW, Welspun Gujarat, Man Industries Maharashtra Seamless, Jindal Pipes, Welspun Gujarat Electrosteel Castings, Jindal SAW, Kesoram Industries
1/2ʺ ‐ 14ʺ Round steel billets 18ʺ ‐ 100ʺ 16ʺ‐50ʺ 1/2ʺ ‐ 20ʺ 3ʺ‐39ʺ HR Coils Steel Plates HR Coils Pig Iron & Scrap
the US and UK and Africa.034 17.452 16.7 7 3. 9th December.ghallabhansali.784 43.2 4.003 73.339 325.452 16.3 65 (US$ bn) 23 18 11 10 8 4 4 78 Indian Players (%) 40 8 2 40 2 15 5 20 (US$ bn) 9. 2009 GLOBAL PIPELINE INVESTMENT LOOKS ROBUST – US$78BN POTENTIAL According to the global consultancy.2 0.Ghalla Bhansali Stock Brokers Pvt. The increased demand in Asia may be fueled mainly by the growing economies of China and India.2 0.974 Region Asia North America Europe Middle East Latin America Africa Australasia Total Global market potential US$78bn in five years. with principal demand coming from Asia followed by North America.339 325.003 73. Russia and the US together absorb more than half of the entire global production of welded steel pipes and tubes. Of these. The global export market of welded pipes is estimated to be close to US$15–16bn a year.736 44.com 2 .034 17. the Middle East.5 3.000km are to be constructed in the next five years.4 0.626 35. US$16bn market opportunity for Indian players Total length Required tonnage Total Value Addressable Market for Est Market Opportunity (km) 95.1 1.736 44. Global demand for pipes in the next five years Region Asia North America Europe Middle East Latin America Africa Australasia Total Number of projects 142 192 101 111 56 49 59 710 Total length (km) 95.974 (m tonnes) 19 15 9 8. Russia.2 16 www.6 0. Major users of line pipes are regions such as the Middle East.626 35. 710 pipeline projects of ~326.784 43. Ltd.
2009 DOMESTIC DEMAND GAINING MOMENTUM India is expected to have a spurt in the construction of pipeline infrastructure because the countryʹs domestic gas availability is poised to increase two‐fold over the next four years. energy demand grew by 3. India’s energy demand is expected to surpass the energy demand of the entire OECD Pacific region (which currently equals 60%). Also. India’s energy requirement to be robust for the next 25 years According to the EIA.ghallabhansali. India to be the third‐largest energy consumer in the world. most of the exploratory blocks that have been offered under various rounds of the New Exploration Licensing Policy (NELP) will enter the drilling phase over the next few years.com 3 . In addition.8% CAGR www. Share of gas in India’s energy basket will rise Gas demand expected to grow at 4. 9th December.5% pa in 1999–2005. after China and the US (it currently ranks fourth). which we expect to increase to 3. Ltd. By 2030.Ghalla Bhansali Stock Brokers Pvt.5% CAGR for 2015–30.7% pa during 2005–15 and to slow slightly to a 3.
Reliance Group and GSPL have planned huge capital expenditures to establish gas transmission infrastructure.Ghalla Bhansali Stock Brokers Pvt. Hence. with the eventual development of a national grid. Ltd.com 4 . o The growth of pipeline infrastructure to be synchronised with supply and demand timelines. Development plans for transmission infrastructure GAIL Dahej‐Uran‐Pune‐Dabhol PL Dadri‐Bawana‐Nangal PL Chainsa‐Gurgaon‐Jhajjhar‐Hisar PL Jagdishpur‐Haldia PL Dabhol‐Bangalore PL Kochi‐Kanjirkkod‐Mangalore/Bangalore PL Dahej‐VijaipurII PL Vijaipur‐Dadri PL Vijaipur‐Auraiya‐Jagdishpur PL GSPL Rajkot‐Jamnagar‐Vadinar PL Bhadbhut‐Gana‐Hadala PL Darod‐Pipavav PL Morbi‐Mundra PL Padmla‐Godhra PL Mehsana‐Palanpur PL Reliance Kakinada‐Hyderabad‐Uran‐Bharuch‐Ahmedabad PL Kakinada‐Kolkata PL Kakinada‐Chennai‐Tuticorin PL IOCL Dadri‐Panipat PL 114km 2062km 1150km 580km 110km 190km 215km 182km 60km 70km 693km 610km 310km 876km 730km 820km 610km 505km 571km www. intra‐state and inter‐state levels. The planned investments and ongoing projects in the next few years should promote significant expansion of the transportation infrastructure – at local. 9th December.ghallabhansali. the government has made the development of pipeline infrastructure a top priority. o Companies such as GAIL.826km to 13. 2009 Gas transmission infrastructure poised to triple Transportation infrastructure has been a major barrier to the development of a full natural gas market in India.685km in the 11th five‐year plan o The current gas grid for gas transmission is not adequate to meet future natural gas supply. Pipeline length to triple from 5.
Water supply. of projects Approvals (Rs bn) 140 99 59 19 75 40 9 13 2 4 1 461 183.86 4. The top six sectors account for 97% of all the approved projects. A combination of greater government focus on irrigation.17 0.Ghalla Bhansali Stock Brokers Pvt. 2009 Water‐related demand will continue Water and irrigation offers a very strong business opportunity for Indian pipe manufacturers.ghallabhansali. The 11th plan envisages ~US$83bn of investments in irrigation and water supply and sanitation over FY08–12. The mass rapid transport system (MRTS) and roads follow with contributions of 10% and 7%. higher multilateral lending for water‐related sectors and enhanced private sector participation in water supply projects increase the potential for a rise in demand from this segment.46 6.82 21.86 0. 9th December. sewage and drainage projects account for 76% of all project approvals. in addition to the opportunity from the energy sector.2 % of approvals 37% 25% 14% 10% 7% 4% 1% 1% 0% 0% 0% 100% www. Ltd.56 494.com 5 .24 123.7 33. Sector project approvals – 76% has been for water‐related segments Sectors Water Supply Sewerage Drainage Mass rapid transport system Roads / Flyovers Solid waste management Urban renewal Other urban transport Development of heritage areas Preservation of water bodies Parking TOTAL No. respectively.66 47.38 70.49 1.
geopolitics and a shift to cleaner fuels (gas) than by short‐to‐ medium‐term demand fluctuations. Indian manufacturers can offer low‐cost quality options. which. 2. Despite the economic slowdown in the United States.com 6 . Ltd. about 25 per cent of which is likely to be converted into firm orders. 9th December. For last few months exports have been sluggish. ORDER BOOKS LOOK ROBUST Indian pipe makers have orders going up to 9‐12 months on their books.500 crore. 2009 DEMAND OUTLOOK STRONG FOR WELDED. SLUGGISH FOR SEAMLESS Demand for welded pipes remains resilient Demand for SAW pipes remains strong given the continued need to connect new areas of oil and gas supplies to areas of net demand. Besides the order book.000/mt ($40‐65/mt) over the past months. like many others. the increase in activities remains very low given a significant decline during the past 12 months. investment in crude and product pipelines is expected to increase by 17% YoY and investments in natural gas pipelines are expected to increase by 64% in 2009. www.ghallabhansali.Ghalla Bhansali Stock Brokers Pvt. Domestic millsʹ prices of seamless pipes have increased by Rs. in turn. a need for infrastructure development to meet long‐term demand.000km and Europe needs replacement of 46. especially from local customers.360 crore while its bid book is close to Rs 4. We believe the demand for oil and gas transmission pipelines is more often driven by structural factors like government policies. the size of the order books of both Jindal and Man. Latin America also needs a replacement for 34. Indian pipeline manufacturers are benefiting from large‐scale US gas pipeline expansion. Man Industries’ Mantri says their bid book is worth Rs 4. however.000km of pipeline. expenditures on oil and gas pipelines are actually expected to increase in 2009. More than 70. pipe companies also carry a larger bid (that can be converted into orders) book. Jindal SAW’s order book totals Rs 3. However. Although there has been some increase in global drilling activities recently.800 crore.500 crore order book. For the US. is far smaller than what they used to be.000km of pipeline is due to be changed in the US by 2014 because these are more than 35‐40 years old. According to the Oil & Gas Journal. The conversion rate of its bid book is about 60 per cent. Seamless pipe demand recovery to remain sluggish Seamless pipe demand is very highly correlated with crude oil prices.000‐3. Demand in the domestic seamless pipe market is improving slowly.800 crore. Welspun Gujarat’s order book is about Rs 6. there are now signs that a revival has started in the international markets. Man Industries’ carries a Rs 2. Export quotations have risen by $50/mt over the same period. depend on the global economic outlook.
Therefore. pipe production per hour increases gradually as production increases. For the Indian pipe manufacturers. 2009 CLIENT ACCREDITATION – NOT A MAJOR HURDLE ANYMORE Given that oil and gas transportation is hazardous. www. but now reducing to less than 2 years CAPACITY UTILISATION RANGES BETWEEN 40–60% In a pipe mill. the process of getting accreditation requires approvals not only for the quality of the final pipes.ghallabhansali. Indian pipe manufacturers are slowly reaching their optimisation levels. Also. since a large portion of current capacities has been added in the past 2–3 years. for Indian pipe manufacturers to become suppliers to international/local oil majors. Obtaining accreditation is a time‐consuming process – but things are changing now Approval of raw material vendor Approval of pipe l Approval of product Approval of coating for pipes 3-4 years . but also for the plant facilities.com 7 . 9th December.Ghalla Bhansali Stock Brokers Pvt. they must obtain accreditation from these companies. thereby creating a major entry barrier for new pipe manufacturers. there are stringent quality norms set by global oil majors for pipe manufacturers. This generally takes three or four years. and it generally takes a couple of years for a pipe mill to achieve optimum levels of production. Ltd.
Its manufacturing facilities are located on the western coast (mainly in Gujarat) and this helps it to reduce freight cost while exporting pipes to the West Asia market. The company manufactures longitudinal submerged arc welded pipes (LSAW). water & sewage transport and irrigation facilities. www. helical submerged arc welded pipes (HSAW) and electric resistant welded pipes (ERW). COMPANY PROSPECTS 1. catering mainly to the American market. It also has a HSAW manufacturing facility. with a capacity of 0.5 billion Welspun Group and a manufacturing hub for state‐of‐the‐art pipe and related niche products. It also offers complete coating. However. The strong order book positions of the welded pipe producers can provide comfort at the top line. out of which 60% is accounted for by HSAW pipes. The low penetration levels represent the huge scope for growth for the pipe industry.5 million tonne. It has a 1. 2009 INDUSTRY RISKS o Fall in crude prices o Shortage of steel plates/coils o Sharp increase in freight costs o Sharp unexpected increase in the cost of steel plates/coils o Increased competition CONCLUSION The Indian Pipe Industry is among the top three manufacturing hubs after Japan and Europe. replacement demand from US and European countries. The positive trend in the Indian pipe industry to continue in the next 3‐5 years on the back of high oil and gas discoveries worldwide.ghallabhansali. as well as bending solutions. The pipe producers offer strong revenues and earnings visibility despite uncertainty in commodity prices. Welspun Gujarat Stahl Rohren Limited: Welspun Gujarat Stahl Rohren Limited (WGSRL) is part of the $ 1.Ghalla Bhansali Stock Brokers Pvt.5 million tonne manufacturing facility for plates & coils. increased efforts by the Government of India (GoI) on infrastructure development for laying pipelines for oil & gas transport.com 8 . the penetration level of pipelines in oil & gas transportation is low at 32% in India as compared to 59% in USA and 79% globally.35 million tonne in the US. Ltd. both of which are used as raw materials in pipe making. WGS is one of the largest SAW pipe companies in the world. 9th December. It has a combined annual capacity of 1.
5 million tonnes. In addition. PSL Ltd. and air line ERW pipes. 2009 2. and sewage/water treatments. boilers and heat exchangers. The company also offers a range of coating services that are used to increase corrosion‐resistance capacity of pipes. diesel. Currently.ghallabhansali. API oil country tubular goods range. steam. 3. which is widely used in the energy sector for the transportation of oil and gas. 9th December. Ltd. The order book position of Jindal Saw stood at about US$ 700 million. gas. Maharashtra Seamless Limited Maharashtra Seamless Limited manufactures seamless pipes and tubes primarily in India. The company has put on hold its planned 300. a majority of which are spread strategically across eastern and western coasts. a part of the UK‐based MAN group. and line pipes. mostly for export.com 9 . www.000‐tpa HSAW mill in the US. Jindal SAW: Jindal SAW Limited (JSL) (erstwhile SAW Pipes Ltd) is a part of the Jindal Group and one of the countryʹs largest producers of Submerged Arc Welded (SAW) pipes. drinking water. hydrocarbon. The current order book includes export orders of about 40%. should now start seeing meaningful contribution from the 400. MAN currently has orders worth Rs 2. 5. around 55% of total sales come from exports. cold pilgered/cold drawn tubes. and bearing and general engineering industries. Maharashtra Seamless Limited was incorporated in 1988. It also produces electric resistance welded (ERW) pipes comprising gas and sewage lines. It has 13 pipe mills. The company’s ERW pipes are used for applications in the fields of natural gas or oil. Man industries Man Industries. The company is also focussing on the growing domestic market given the huge demand potential on the back of a trebling of gas supplies. and ERW casing pipes. 4.000‐tpa HSAW capacity added over the past two years. The company’s pipes and tubes are used in the oil and gas. water.Ghalla Bhansali Stock Brokers Pvt. PSL is the largest helical submerged arc welding (HSAW) pipe‐maker in the country and commands an over 50% share of the market with a capacity of about 1. The company has participated in various bids and expects to fetch some orders in near future. The well‐distributed manufacturing facilities give it an edge over its competitors with lower freight cost and ability to service overseas markets. Its products include hot finished pipes and tubes. it generates and sells electricity through a wind power project.500 crore to be executed in the next 12–15 months. Its Anjar facility is located close to the Mundra and Kandla ports enhancing export competitiveness. automotive. The orders are slated to be executed by end March 2010.
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