By Rod Nickel and Allison Martell
WINNIPEG, Manitoba/TORONTO (Reuters) - Steel pipes and tubes used in drilling and transporting crude oil flooded into Canada this spring, a Reuters analysis shows, as U.S. President Donald Trump's steel tariffs forced producers from Asia to Europe to seek new markets.
Canada is a major steel producer in its own right and the biggest supplier to the United States, but the country is swamped by supply from India and South Korea which underscores the global shift in trading patterns following the Trump administration's decision to place tariffs on steel and aluminum imported to the United States.
The spike in imports threatens jobs in the Canadian energy steel-making sector, one of the biggest consumers of the commodity, prompting concerns about plants owned by Tenaris SA (MI:TENR), EVRAZ and others, and calls for Ottawa to take action.
(GRAPHIC: Canadian imports of steel pipe for the energy industry, excluding U.S. products - https://reut.rs/2tlYH41)
Non-U.S. imports of drill pipe, casings and line pipe rose 90 percent in April from a year earlier and their total value rose 80 percent to C$183 million ($137.3 million), customs data analyzed by Reuters showed.
"There is a clear and present threat looming over us right now," said Neil Rasmussen, president of Alberta-based Bri-Steel Manufacturing. Sales of "oil country tubular goods" in Canada are already slow and increased import competition worsens the situation, Rasmussen said.
While steel imports have expanded into Canada for years due to high domestic production costs and global overcapacity, they accelerated after Trump's threats, leading up to the president announcing them on March 1.
The latest surge was driven by an import spike from India and South Korea, the data showed. Tonnage rose more than value, indicating that average prices fell.
Asked about higher shipments to Canada, India's Steel Secretary, Aruna Sharma, said India does not export large quantities of steel overseas.
A flood of cheap imports forced the European Union to launch a safeguard investigation, resulting in a sharp drop in imports through the port of Antwerp, the union's biggest steel-handling port, a spokesperson at the port said.
Selling pipe into the United States has also become harder for Canada with some U.S. customers asking Bri-Steel to delay orders, leaving it to consider layoffs if the situation worsens, Rasmussen said.
The import surge has the potential to close steel plants, said Mark Rowlinson, assistant to the United Steelworkers Canada national director. He referred to a 2015 shutdown at the Tenaris Prudential (LON:PRU) plant in Calgary, which the company blamed on a spike in pipe imports.
GETTING WORSE
A steel industry source, who was not authorized to speak publicly, said Canadian producers are losing bids to South Korea, Mexico, Romania and China.
"It's going to get a lot worse."
Tariffs took effect on March 23, though some U.S. allies including Canada were exempted until May 31. Canadian retaliatory tariffs take effect on July 1.
Canadian authorities can levy special duties on unfairly subsidized steel, or temporarily restrict imports during a sudden surge with a "safeguard action". Asked about the potential for safeguards, Canada's Finance Ministry said it is monitoring the situation.
Canada should take action as pipe priced more than 10 percent cheaper floods the market, said Butch Mandel, president of Welded Tube of Canada. The company is realigning its supply chain to sell only Canadian-made products to Canadian customers, Mandel said.
Pipemaker EVRAZ declined to comment on how it has been affected.
Luxembourg-based Tenaris supports Canada's retaliatory tariffs and could boost production if tariffs against U.S. steel cause supply shortages, according to a confidential letter sent last week to Canada's finance department.
"Canadian manufacturers have ample capacity to assure any security of supply concerns," said Tenaris Canada vice-president David McHattie, in a letter seen by Reuters.
McHattie declined further comment.
One executive at a Canadian pipeline company, speaking on condition of anonymity, said it is accepting supply quotes from more countries than ever before, allowing it greater flexibility.
But overall, the cost-inflating effect of the trade war is another pressure on Canada's high-cost oil sector, industry officials said.
Steel tariffs are a "troubling development," since steel is used in every part of the (energy) industry, said Nick Schultz, vice-president of pipeline regulation at Canadian Association of Petroleum Producers (CAPP).
Many U.S. manufacturers import Canadian steel to make specialized equipment for Canada's oil industry and are passing along the anticipated Canadian tariff, said Tom Whalen, chief executive of Petroleum Services Association of Canada.
"We have a competition issue in Canada. This is going to make it worse," Whalen said.