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At the time this article is published, the second quarter of a very turbulent year is closing. The PVF industry, in conjunction with the energy sector of our economy, continues to be targeted by a plethora of cancellations, restrictions and punitive regulations coming from the Biden administration.
As passing legislation becomes more difficult, the White House is focusing more on regulations:
As of this writing, the Eastern states — supplied by the Colonial Pipeline — are mired in fuel shortages created by the data hack and resultant shutdown of the pipeline. The Colonial Pipeline is the supply line for gasoline, aviation fuel and other fuel derivatives that moves the fuel to market from Texas to New Jersey.
This may be a double-edged sword as the administration admitted that pipelines are the most efficient and safest way to deliver liquids and gas to market.
Exasperating the crisis is the shortage of truckers who have driven up shipping costs for U.S. companies and are causing a major constraint in the delivery of fuel to offset the shortage due to the shutdown of the pipeline.
Trucking fleets have been stepping up equipment orders and raising driver pay as they compete for labor with industries such as construction. These efforts still have not caught up with demand as the freight market responds to an expanding economy rising from the pandemic shutdown.
“The network itself is just so fragile right now,” notes Bob Biesterfeld, chief executive officer of North American freight broker C.H. Robinson Worldwide. “If there are more disruptions, such as severe weather, that roiled the supply chain in the first quarter, we could see some pretty chaotic truckload freight markets.”
Rising Materials Costs, Domestic Sourcing
During the past year, PVF companies dramatically reduced their inventories to conserve cash. As the economy continues to expand in response to the reduction in restrictions imposed during the COVID-19 pandemic, the industry is rapidly moving to replenish its supplies.
Prices for steel are up by 145 percent, lumber by 126 percent, copper by 59 percent and oil by 80 percent — reflecting the pressures of a recovering economy. Several steel mills closed their order books for 2021 and are not taking new orders until after the first of the year in 2022. In addition, some steel mills have gone to allocations.
We are operating in a very disruptive environment due to container shortages, port congestion, trucking shortages and inconsistent signals from the administration related to the health of the economy.
The supply chain for offshore carbon steel butt-welding fittings, forged steel flanges, valves and other related PVF commodities are under severe strain, resulting in long lead times and increased costs of finished goods.
Compounding the issue are the constraints at the ports on both the East and West coasts. Container ships are being anchored offshore and waiting two to three weeks before they are able to unload.
Offshore labor costs also are rising, reflected in pricing increases implemented at a high rate.
As commodities become increasingly more expensive, whether faster inflation proves transitory is the biggest question for policymakers and markets. Both rising prices and the potential response from the central banks are at the top of the list of concerns for money managers.
The Bloomberg Commodity Spot Index, which’s tracks 23 raw materials, rose to its highest level in almost a decade. It pushed the gauge of global manufacturing output prices to levels flanges not seen since 2009 and U.S. producer prices to levels not seen since 2008.
Rising prices, lengthened lead times coupled with rising handling and shipping costs for offshore PVF products that include, but are not limited to, carbon steel butt-welded fittings and forged steel flanges emphasize the need to focus on more reliable domestic sourcing.
Domestic sourcing not only provides for reliable availability, but it also ensures higher quality material versus low-cost offshore products. It limits the exposure to liabilities for possible product failures and construction delays.
Maintenance, Construction Projects
Natural gas-fired turbines (single and combined cycle) units installed across the country from 2010 to 2018 are set for major maintenance. The major portion of upcoming maintenance projects scheduled for the remainder of 2021 is concentrated in the eastern half of the United States, where the Utica and Marcellus shale plays supply the natural gas to the Great Lakes, Northeastern, Mid-Atlantic and Gulf Coast regions.
Duke Energy Corp. accounts for nine planned turnarounds for the remainder of the year, more than any other plant owner. Duke plans an outage at the combined-cycle, 642-MW Block 4 at the Louis V. Sutton Energy Complex in Wilmington, N.C. The same block is expected to see another outage in the fourth quarter.
Dominion Energy accounts for eight planned outages, most of which are in Virginia. The combined-cycle, 1,396-MW Brunswick Power Plant in Freeman is preparing for a fourth-quarter turnaround maintenance outage. Dominion’s Bear Garden Station in New Canton (a 616-MW facility) also is planning a fourth-quarter outage.
U.S. construction spending through the first quarter of 2021 was up 4.5 percent to $328.3 billion as compared to the first quarter of 2020. Housing continues to be one of the strongest segments of the economy.
Industrial construction activity in the United States is up 37 percent so far this year, with all regions indicating double-digit growth, with the exception of the Great Lakes and New England regions, which are showing slight declines (per Industrial Info). More than 3,700 industrial projects are under construction in 2021, totaling more than $485 billion.
Valero Energy Corp. expects its capital investment for 2021 to be approximately $2 billion, with about 60 percent of it going toward sustaining the business and 40 percent toward growth. Valero is funneling a large portion of the capex funding, with almost half going toward the renewable diesel business.
PVF Roundtable News
The PVF Roundtable’s Don Caffee Memorial Golf Tournament was held June 7 at The Clubs of Kingwood Golf Course in Kingwood, Texas. A record turnout was expected. The tournament preceded the June 8 networking meeting.
The golf tournament and the TroutBlast are the two major fund-raising events held by the PVF Roundtable Charitable Foundation. Funds raised are dedicated to the PVF Roundtable Scholarship Programs.
As a member of the board of directors, and I speak for all members, we thank you for your participation in these events.
The networking meetings are a unique venue for you, and your associates, to network with your peers in the PVF industry. These events provide the platform to share information, discuss pertinent issues, meet new contacts, develop new and long-lasting friendships and pursue new opportunities in the industry.