MOSCOW Demand for large-diameter pipe (LDP) from Russian energy firms such as Gazprom could soar up to 50 percent in 2014 as major projects ramp up after delays, the owner of trading firm Pipe Innovation Technologies (PIT) told Reuters.
A forecast need for up to 1.8 million tonnes of such pipe from state-run gas company Gazprom (GAZP.MM) and Russian oil pipeline monopoly Transneft (TRNF_p.MM) next year would offset a drop in demand in 2013.
Key drivers for growth will be the delayed start to building the South Stream gas export pipeline under the Black Sea to Europe, and the Power of Siberia link that would supply China if Gazprom wraps up a long-awaited export deal.
In the absence of such projects, pipe demand would be down 20-30 percent this year compared with 2012, PIT's Ivan Shabalov told the Reuters Russia Investment Summit.
This year's fall will pose a headache for producers including TMK (TRMK.MM) and Severstal (CHMF.MM), struggling to turn a profit in an industry hobbled by weak prices.
"We see a fall in LDP demand from Gazprom and energy firms this year ... Next year looks more promising," Shabalov said.
Russia's economy is expected to grow by 1.8 percent this year - half the rate forecast at the beginning of the year. The government, meanwhile, plans to cap regulated tariffs charged by monopolies, including Gazprom, to bear down on inflation.
"Gazprom may cut investment due to the recent government decision to freeze rates. As a metallurgist I have to take this into account," Shabalov said.
A tender to supply pipes for the offshore part of South Stream, which will run 925 km (580 miles) under the Black Sea before making landfall in Bulgaria, will be awarded in December or January, according to Shabalov.
Severstal, United Metallurgical Company (OMK) METKSV.UL and ChelPipe (CHEP.MM) are among the Russian pipemakers vying for the offshore contract alongside some small European firms, Indian steel producer Tata Steel (TISC.NS) and Japan's Nippon Steel & Sumitomo Metal Corp (5401.T).
MISSING THE BOAT
Shabalov, who has over 30 years experience in the Russian metals industry, said steelmakers risk losing out to larger foreign rivals as the dynamics of the global steel market shift in favor of large-scale producers.
Oversupply, signs of a growth slowdown in China and stagnation in crisis-hit Europe have sent steel prices tumbling from all-time highs in 2011, forcing producers to transform their business strategies.
Pointing to industry consolidation in Japan, he said Russia's steel industry should be following suit.
Annual crude steel output at Russia's top firms averages around 10 million tonnes, which is an unsustainable business model when top global firms are producing 50-100 million tonnes a year, Shabalov said.
Consolidation, which would cut costs, reduce competition and prevent oversupply, is unlikely to happen any time soon in Russia because of the strong personalities of many of the steel oligarchs who acquired their assets in the 1990s.
"Who will be the first (to consolidate)? The one who's most flexible," he said. "We're going to lose out in the future if we don't."
(For other news from Reuters Russian and Eastern Europe Investment Summit, click here)
(Additional reporting by Andrey Kuzmin, Writing by Alessandra Prentice; Editing by Douglas Busvine and Matthew Tostevin)