(Adds comments from Hyundai Hysco)
By Krista Hughes
WASHINGTON, July 11 (Reuters) - The U.S. Commerce Department on Friday set duties on South Korean steel pipe used in the oil and natural gas industry, reversing itself in one of the most contentious trade disputes in years after hefty lobbying from U.S. producers and lawmakers.
The turnaround cheered domestic steel companies battling a surge in imports from foreign rivals looking to cash in on surging demand for the specialist pipes due to a boom in U.S. shale drilling.
Duties will lift pipe prices and tighten supplies, helping companies like United States Steel Corp. Its shares rose 3.2 percent to the highest close since mid-April, at $27.64.
Commerce also confirmed duties on oil country tubular goods (OCTG) from India, the Philippines, Saudi Arabia, Taiwan, Thailand, Turkey and Vietnam. Ukraine was exempted from duties under a suspension agreement.
Steel companies lodged the complaint last year after imports of pipe from the nine countries doubled, accounting for nearly two-thirds of the U.S. market, according to steel industry body American Iron and Steel Institute.
The ruling will also aid pipe specialist Tenaris subsidiary Maverick Tube Corporation, Boomerang Tube, Energex Tube, a division of JMC Steel Group, Northwest Pipe Company, Tejas Tubular Products, Russia's TMK IPSCO and France's Vallourec Star.
In its preliminary ruling in February, Commerce found all countries but South Korea had sold imports below cost, excusing the country from duties and sparking a surge of complaints.
Lawmakers and industry groups wrote to Commerce to express concern, steel industry executives complained to Congress and steelworkers staged rallies around the country. Analysts had been cautiously optimistic of a reversal, which is not uncommon at the final investigation stage.
The duties are still subject to a final decision by the U.S. International Trade Commission (ITC), where companies must prove they were injured by the flood of cheap imports.
But if they prevail, imports from Hyundai Hysco will have duties of 15.75 percent, from Nexteel 9.89 percent and all other South Korean producers will have a duty of 12.82 percent -- levels U.S. Steel CEO Mario Longhi said were "significant."
U.S. imports of South Korean OCTG were worth $818 million in 2013, more than the imports from all eight other countries combined, according to Commerce data.
Hyundai Hysco said it would appeal to the international trade court against what it saw as an unjust measure, although it did not expect Korean steel pipe exports to be hit.
"In the long term, we do not believe it will negatively influence the export of steel pipes made in Korea. Even if the duties are applied to our export prices, the profit margin will increase, compared to now," it said in a statement.
"Hyundai Hysco will appeal the case to the Court of International Trade to correct the unjust decision and at the same time, the South Korean government is also preparing to appeal the case to the World Trade Organization," it added.
South Korea's trade ministry declined to comment.
"Our job is to demonstrate to the ITC that the U.S. industry was injured by these imports so we ought to have the margins in place for at least five years," said attorney Roger Schagrin from Schagrin Associates, representing some of the petitioners.
United Steelworkers International President Leo Gerard said workers would tell the ITC how their communities were suffering from dumping.
Alliance for American Manufacturing President Scott Paul pointed to layoffs in Ohio and idled plants in Texas and Pennsylvania and said he hoped the ITC would reach a "fact-based conclusion."
But independent steel analyst Charles Bradford said imports were a "sideshow" compared to a surge in domestic supply, suggesting it may be hard to prove injury.
U.S. steel manufacturing has been hit by weaker demand in recent years but pipe sales to the oil sector in the wake of the shale boom had been a bright spot for the industry, which successfully imposed duties on Chinese imports in 2009.
Investment in U.S. facilities has risen, with China's Tianjin Pipe Corporation, that country's largest producer of seamless steel pipe, building a $1.1 billion steel processing plant in Texas with joint venture partners.
A report by the Economic Policy Institute and lawyers Stewart and Stewart found U.S. steel imports rose 12.3 percent between 2011 and 2013 while prices fell 15 percent.
The final Commerce ruling followed legal wrangling over how to define a benchmark price for South Korean products given producers have no domestic market for the pipe.
The ITC will hold a hearing on the case on July 15. Its decision is due by Aug. 25 for India, the Philippines, Saudi Arabia, Thailand, Turkey, Ukraine, and Vietnam and by Sept. 23 for South Korea and Taiwan. (Reporting by Krista Hughes; Additional reporting by Julie Gordon in Vancouver and Josephine Mason in New York; Editing by Alden Bentley and David Gregorio)