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Expansion of the Tubular Products Business Value Chain

March 2014

Tubular products supporting energy industry and infrastructure for our daily living

It is taken for granted that gasoline, for instance, is readily available. However, if we think about it, gasoline is delivered to Japanese consumers from distant places abroad where oil, the raw material of gasoline, is produced from deep wells. Tubular products, one of the steel products, play an important role in supporting that process.
Tubular products are, literally, steel pipes. While they are used for familiar purposes such as making furniture and carrying water, pipes are also extremely important for numerous other applications including the oil and gas essential for us to live comfortably.

Sumitomo Corporation's tubular products business mainly consists of four sectors dealing in different kinds of pipes: 1) pipes to produce oil and gas from under the ground (oil country tubular goods [OCTG]); 2) pipes to transmit oil and gas to remote locations (line pipe); 3) tube and pipes used primarily for oil refinery, gas processing and power generation plants (specialty tubular products); and 4) diverse pipes including tubular products used as auto parts (mechanical tubes) and those for domestic industrial use, as well as gas pipes.

An Offshore Platform where OCTG is used

Sumitomo Corporation has a long corporate history and many notable achievements within the tubular products business. While production volumes of oil and gas are low in Japan and domestic markets of products such as OCTG and line pipe are very small, there is a huge demand globally for such products. As these products are used under severe conditions, customer requirements are demanding. Sumitomo Corporation, with the support of a manufacturer having strong engineering capabilities, provides quality products and services, and has gained a very good reputation.

Sumitomo Corporation's tubular products business has changed drastically with the times. The business model of product sales only has expanded to be both a product sales and service provider model to the energy industry. Let us look back over this history.

Pipeline under Construction

Reading trends, and setting the course boldly and accurately

Sumitomo Corporation's tubular products business began by placing focus on the export of tubular products manufactured in Japan. Exports of OCTG to the United States formed the crux of operations of the tubular products business then.
Meanwhile, from the late 1970s to the early 1980s, trade friction with the U.S. emerged as a major issue, and exports of OCTG were gradually regulated. To overcome that situation, Sumitomo Corporation sought business opportunities in addition to exporting. This came to represent the first major turning point – the entry into the OCTG distribution business in the United States.

An OCTG distributor named Premier Pipe was founded in the United States in 1987 following the establishment of another OCTG distributor in Canada in the previous year. Premier Pipe, since its beginning, has worked hard to win long-term supply contracts with customers, especially oil majors. In 1993, they initiated their first SCM (Supply Chain Management) contract. Sumitomo Corporation was on top of market changes and strived fervently to develop new business opportunities.

Sumitomo Corporation was the pioneer among Japanese trading companies to have a distributor dedicated to OCTG in the U.S. market. By having a local distributor, it moved from a business focused on exports to a business where OCTG purchased in the United States were also sold in the U.S. market.

OCTG in Stock

Integrated operations from upstream to downstream

The second major turning point following the establishment of distributors of oil country tubular goods was the "move to upstream," meaning the corporation's entry into manufacturing. In 2002, Sumitomo Corporation, in conjunction with a French partner, acquired a U.S. seamless pipe manufacturer North Star Steel, which it started as V&M Star.
The U.S. market is vast enough to occupy a roughly 50% share of the global distribution of OCTG. In that huge market, Sumitomo Corporation realized expansion of the value chain ranging from manufacturing and processing to selling. As a result of continuous investment in leading distributors from 2002 to 2006, Sumitomo Corporation has grown so large that it currently occupies the largest share in the U.S. distribution market of OCTG.

Furthermore, in response to the increased demand for seamless tubular products stimulated by the shale gas and oil development boom that started in mid-2000s, V&M Star invested in a small-diameter seamless steel pipe manufacturing in 2010, resulting in a doubling of its production capacity.

Besides OCTG, oil and gas wells use various metal materials and equipment. Sumitomo Corporation acquired an equity stake in HOWCO, a manufacturer and distributor of oil and gas well-related equipment. This was done in order to expand the value chain further, to develop operations in the oilfield services sector, where the market is huge, and to aim for new operations conducive to the growth of pipe-related businesses.

Production Line of V&M Star

Global expansion

Based on long-term contracts with oil majors developed by its U.S. distributors and SCM contracts primarily focused on OCTG inventory control, Sumitomo Corporation established a business model for SCM operations. The model consists of a system capable of providing a broad range of OCTG services including purchasing, logistics, maintenance, and inventory management.
To draw on know-how accumulated during the development process of that business model, Sumitomo Corporation launched a SCM promotion company specializing in the upgrading of operations for existing projects as well as the promotion and support of start-up SCM projects. This business model has so far been employed in more than 20 projects implemented in regions including and beyond the United States such as West Africa, Sakhalin and India.

As described, the value chain of the tubular products business of Sumitomo Corporation has expanded—and continues to expand—globally, and its scale and quality of service is highly regarded by customers, including oil majors. Sumitomo Corporation also promotes value chain expansion with respect to products other than OCTG. It established a master distributor dealing with specialty tubular products in the United States as well as bases in the Middle East and Australia, which have grown to play a very important role in the global distribution market. Sumitomo Corporation continues to expand the value chain and further develop operations in the tubular products business where the opportunities align with and support the global strategy.

Inventory management of the various types of specialty tubular products is the key for success to satisfy customer needs

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