OCTG Weathers Texas Storms

ExxonMobil Photo Courtesy Shuli Hallak Photography www.shulihallak.com

ExxonMobil Photo Courtesy Shuli Hallak Photography www.shulihallak.com

Susan Murphy | Publisher + Editor in Chief | The OCTG Situation Report

Susan Murphy/Publisher

Weather news has taken the US by storm for the past couple weeks starting with Hurricane Harvey that hit home for so many in the oil patch. While the plight of the people in its path was the first concern, many in the OFS supply chain wondered how the storm might trickle down to tubular goods. After all, the fate of OCTG this year has been balanced on a fragile ecosystem making another potential threat especially distressing. The two charts below lend further credence to this point; revealing the growing OCTG trade deficit as imports gain a greater foothold on our shores again this year. More discussion about the import situation can be found on page 7 of this month’s Report.

We’re relieved to report, all things considered, the hurricane posed minimal headwinds to OCTG supply and demand. Workforce and logistics bore the brunt of the storm. Many employees and trucking companies were forced to find workarounds for closed and impassable roads. Relief efforts are claiming truck capacity that would otherwise be dedicated to commercial shippers and inbound rates to Houston are rising. Trucking services are apt to remain disrupted for several months and personnel are more susceptible to poaching from other industries. As rates continue to spiral, these added costs are likely to be passed through where possible. Rates will eventually settle but aren’t inclined to fall to previous levels. The two leading US railroads, Union Pacific and BNSF Railway, along with regional Kansas City Southern (KCS) immediately suspended operations in the areas affected by the storm. Most have resumed service but representatives report maintenance work continues in some locations, which could slow transit times for some trains. The outcome is not expected to burden tubular goods.

There were some yards that were underwater following the storm. Distributors using those yards had to survey their inventory to validate prime status. Pipe that was exposed but salvageable is being power-washed; threads are being inspected, cleaned and possibly cut and rethreaded. Imports of OCTG took a bit of a hit as vessels rode the storm out in the Gulf waiting clearance. Some of the docks that handle OCTG are currently impacted by the channel obstruction. Normal levels of Port activity are anticipated to be restored in about a week according to Houston Port authorities. This poses minimal hardship since there is plenty of imported material on the ground to cover the bulk of immediate needs and supply has caught up with demand for the most part domestically. A few mills dealt with water issues but most have returned to business as usual. Thus, as far as pipe is concerned, the event is mostly “water under the bridge.” Sadly that fact doesn’t lessen the  trauma for the many who were personally affected.

Initial concerns to the energy industry at large revolved around how oil prices would be influenced. The bottleneck caused by a stream of crude that had to be kept in storage tanks during the closure of more than a dozen major refineries (impacting nearly 3.3 mbpd of refining capacity) along the Gulf Coast has been a primary consideration. The bigger issue, however, has to do with US demand due to the after effects of both Harvey and Irma. Until this all plays out, oil prices are expected to remain choppy. Operators will be organizing their plans for 2018 capex in the coming months and will be watching this barometer closely.

As Houston works to rebuild we wish all of our colleagues in the oil patch blue skies and silver linings in the days to come.

ExxonMobil Photo Courtesy

Shuli Hallak Photography www.shulihallak.com

Posted in CAPEX, E&P, Energy, ERW Pipe, Hurricane Harvey, Inventory, OCTG, OCTG CAPEX, OCTG Imports, OCTG inventories, OCTG Mills, OCTG Pricing, OCTG Processors, Oil & Gas Industry, Oil & Gas Pricing, Oil Country Tublular Goods, Oil Patch, Oil Services & Equipment, Onshore, Prime Pipe, Seamless Pipe, Section 232 | Tagged , , , , , , , , , , , | Leave a comment

OCTG and The Section 232: A Numbers Game?

Photo Courtesy Apache Corporation, © Jim Blecha

Photo Courtesy Apache Corporation, © Jim Blecha, www.oilandgasphotographers.com

Susan Murphy | Publisher of The OCTG Situation Report

Susan Murphy Publisher

The tariffs are coming, the tariffs are coming! Or are they? The dog days of summer in the oil patch are being dogged by the protracted Section 232: a rare investigation into “national security implications” of steel imports. Stubborn commodity prices are keeping optimism on a short leash as well. The OCTG market is decidedly unsettled as participants await a declaration on the 232 that was introduced with an expedited timeline but hasn’t proven as straightforward as first implied. After our original treatise introducing the subject in our June intel we are revisiting the topic as it continues to hold sway over the market.

The administration outwardly pledges bold action, but much debate is said to be taking place behind the scenes. For the sake of brevity, we won’t detail the fundamentals of the case here. Those facts can be found in our June blog. Instead, we’ll offer reasons for the stalled recommendations and our thoughts on the outcome.

Although the delay has contributed to softer OCTG prices we don’t view it necessarily as a bad thing. We still believe the powers that be need to take a deliberate approach and consider the entire steel supply chain (producers & consumers). While we have repeatedly recognized the need to curb unfairly traded steel imports, any attempt to isolate and aid one segment of a market has the potential to harm other sectors. This begs the question: has the administration bitten off more than it can chew with the 232?

Among the bones of contention is skepticism about the premise of the investigation from parties who argue that only a small amount of domestically produced steel is used by the military (estimated by the American Iron and Steel Institute—“AISI”—at 3%) and a good portion of what’s imported is produced by our allies. They also point out that the administration of George W. Bush decided not to take action against steel imports under the 232 in 2001 because it could find no national security rationale for doing so.

Another concern is that the World Trade Organization (“WTO”; the international arbiter of trade disputes) is likely to challenge a positive Section 232 decision, however there is a national security exception that the WTO would have to work around. The WTO has never ruled on this application as the 232 has only been enforced against crude oil imports.

Also, if China is the chief target as it has been widely reported, it must be noted shipments of Chinese steel to the US have fallen by 72 percent since 2014, the result of tariffs imposed under the former administration. Of the total 30MM metric tons of steel products the US imported last year (30% of the steel it uses), almost a third came from our allies Canada and Brazil. Other leading ally exporters of steel to the US are South Korea, Mexico and Japan. The countries Russia and Turkey follow closely. China was the 11th-largest exporter of steel products to the US last year. This leads to the question: which countries and/or products will be excluded from any potential action?

There’s also the specter of retaliatory measures from America’s allies. The US is the world’s largest agricultural exporter, which makes it especially vulnerable. In fiscal year 2016, the value of agricultural exports reached $129.7 billion. Punitive tariffs from the 232 could harm domestic agricultural producers—as one example—while failing to address steel production across the board in China.

And we can’t deny the assertion that prohibitive trade actions will raise the prices of domestic steel, trickling down to OCTG and its E&P end users. Adding fuel to the fire, opponents argue that the US steel industry employs far fewer workers than downstream producers that use steel. The AISI claims that the domestic steel industry directly employs ~140K people. The Cato Institute contends manufacturers that use steel as an input employ ~6.5MM workers.

Viewing this through the lens of OCTG, the current escalation of imports suggests the 232 threat has had an inverse effect, fueling a resurgence of imported OCTG as importers move to jump ahead of any decision. Early import license data suggests third quarter tonnages are rolling in. This could be considered cause for some alarm in a rangebound oil price environment especially as OCTG inventory levels have been building for two consecutive quarters. However, with the risk of a potential 232 action transferred to the domestic buyer it is more likely that imports will be suppressed in the fourth quarter. This should help to provide some stability for US domestic OCTG prices (as well as inventory levels) while we ride this storm out.

All things considered, we’re of the mind that the 232 may be all bark and no bite. And if it turns out it has a second life—because the president can play the Trump card—we believe it will be challenged and ultimately defeated. As the saying goes: if you want a friend in Washington, get a dog!

Photo Courtesy Apache Corporation, © Jim Blecha, http://www.oilandgasphotographers.com

Posted in E&P, E&P spending, Energy, ERW Pipe, Hot Rolled Coil, HRC, Inventory, OCTG, OCTG inventories, OCTG Mills, OCTG Trade Case, Oil & Gas Industry, Oil & Gas Pricing, Oil Country Tublular Goods, Oil Patch, Prime Pipe, Seamless Pipe, Section 232, steel industry, Steel Trade Case, Supply Chain, Trade Case, upstream OCTG | Tagged , , , , , , , , , , , , , , | Leave a comment

Getting a Read on OCTG Inventories for 2Q17

SeAH Steel America July Cover Blog

Photo Courtesy SeAH Steel America

Susan Murphy | Publisher of The OCTG Situation Report

Susan Murphy Publisher

As we close the chapter on another exclusive quarterly inventory survey, we’re grateful to the hundreds of OCTG yards throughout the supply chain that enable us to get the inside story on inventory volumes across the lower 48. We’ll preface this by saying last quarter’s reveal—exposing the first build in inventories since March of 2015—was a bit of a cliffhanger. Not surprisingly inventories and the suspense continued to build in Q2. As OCTG inventory is a leading barometer of oil patch health, what follows is our read on the situation.

Setting the tone for the action-packed second quarter, “prime” U.S. OCTG inventories escalated again for the period ending 6/30/17. The bulk of the increases were reported in the mill/processor category and West Texas/Permian region of the “Tri-state” (TX, OK, LA) area. OCTG stockpiles outside the tri-state region also advanced in Q2. The build recorded in the outer states Q/Q was attributed mostly to increased levels of activity in the New Mexico/Delaware Basin and Colorado/DJ Basin.

Robust production throughout the past quarter gave rise to increases throughout every product segment except one in the tri-state region. Our separate survey of select OCTG distributors registered inventory appreciations as well, an expected outcome considering demand levels. Further detail along with an analysis of “active” versus stalled and/or obsolete OCTG inventory is presented in this month’s OCTG Situation Report.

While raw inventory levels are mounting to support higher sales volumes and hedge against potentially rising costs, months of supply occupies a relatively safe place. There’s nothing inherently wrong with higher levels of inventory provided demand holds steady. That, of course, remains the $64,000 question.

There’s a lot of hesitation in the market with the imminent 232 ruling hanging overhead. OCTG is being quoted subject to the results of the investigation. Oil price uncertainty, OFS cost increases, budget fatigue and the expiration of hedges compound the uneasiness.

If only interpreting inventory results was as simple as reading the Texas Tea leaves! In reality, it’s a lot more complicated but the value is critical insight into the cycles of the OCTG supply chain. Fortunately, there weren’t many surprises this past quarter. While this does not guarantee a happy ending to the year at least it doesn’t conclude the growth narrative that commenced in the second half of 2016.

Photo Courtesy SeAH Steel America

Posted in Department of Commerce, ERW Pipe, Hot Rolled Coil, HRC, Inventory, OCTG, OCTG Consumption, OCTG Consumption & Pricing, OCTG domestic shipments, OCTG Exports, OCTG Imports, OCTG inventories, OCTG Inventory Survey, OCTG mill, OCTG Mills, OCTG Pricing, OCTG Processors, OCTG Producers, OCTG Trade Case, Oil & Gas Industry, Oil Country Tublular Goods, Oil Patch, Oil Services & Equipment, Onshore, Prime Pipe, Q2, Seamless Pipe, Section 232, Steel Trade Case | Tagged , , , , , , , , , , , , , , | Leave a comment

fOiled Again: Section 232’s Catch-22 for OCTG

Photo Courtesy WPX Energy, © Jim Blecha, www.oilandgasphotographers.com

Photo Courtesy WPX Energy, © Jim Blecha, http://www.oilandgasphotographers.com

Susan Murphy | Publisher of The OCTG Situation Report

Susan Murphy | Publisher

Every June we take the temperature of the oil patch and judging by the tone of our many conversations this month we’d say, without exception, full ‘June’ fever has taken hold in the form of the Section 232 (aka Section ‘Catch-22’) investigation. While the probe is occupying more bandwidth than we have space, we’re going to try and break down the parts most likely to affect OCTG into bite-sized pieces. There are two reasons why OCTG is expected to be impacted by the 232: 1) OCTG imports currently account for 60% of the market YTD despite multiple expensive and time-consuming new trade cases and 2) OCTG is at “the top of the food chain” when ranking steel products in terms of profitability. That said, with the scope yet to be defined it’s too early to make predictions.

First some context: the 232 initiated on April 20, 2017 is a rare investigation into national security (broadly defined as economic and energy security) implications of steel imports. A 270-day timeline (or January 14, 2018) to deliver findings and recommendations to the president is allowed by law but this study has been hyper-expedited and while follow-up briefings were scheduled for last week they were cancelled due to lack of consensus on the approach. If the Commerce Department finds that imports threaten to impair the national security, the president has up to 90 days (or September 15, 2017) to determine whether to use his statutory authority to “adjust imports” and another 15 days (or September 30, 2017) to implement his course of action though many expect an earlier announcement. The authority of the president is broad, but it is not unlimited. No president before Trump has determined that retroactive import restriction must be taken to protect national security so imposing relief on imports that have already entered the country seems unlikely. Thus the worst case, from an import perspective, is that ships that are more than 15 days from US shores when the decision is made may be affected. Of course this assumes congress concurs with his decision and it won’t encounter legal challenges, or unilateral retaliations by aggrieved trading partners or even market turmoil—all decided possibilities.

While various remedies are available, there are three more likely recommendations that the Commerce Department could make: 1) imposing tariffs above and beyond the countervailing duty (CVD) and antidumping (AD) ones already in place, 2) imposing quotas or 3) a hybrid of sorts, a “tariff-rate quota.” The tariff-rate quota option includes quotas on specific products from specific countries with new tariffs for imports above those levels. Secretary Ross has suggested this option would help mitigate price risk for steel consumers. Considering the ramifications of any outcome, interests of both steelmakers and steel consumers need to be throughly considered.

Domestic mills tend to favor tariffs or tariff-rate quotas (to equalize the values/selling prices between domestics and imports) whereas E&Ps are inclined to prefer quotas. Since there is no perfect answer and no clear cut winner in these cases, the “tariff-rate quota” may be the best choice. For operators in the oil patch, the #1 concern is that favor shown toward domestic producers will force prices higher. Simply put, there will have to be some give and take for all concerned and that is as it should be. The fact is, we’re all in this together and some form of an economically viable domestic OCTG industry is a critical part of the whole if E&Ps are to operate as well-oiled machines.

Section 232 also has the potential to send the cost differential between domestic and international HRC soaring. In this way the ruling needs to take into consideration not only steel imports but pipe imports, too. Likewise, it could trigger false hope among domestic OCTG suppliers that might expand supply only to have the ruling overturned without long-term market dynamics to support their operations. In any event, more severe import restrictions will force seamless and welded producers alike to buttress their operations in order to defray the costs of taking up for products that they have no financial incentive to produce. These issues will undoubtedly weigh on the market and the potential for some fallout in 2H17 exists. As we mark the halfway point of an otherwise gratifying year, the sobering Section 232 debate swirling in our midst reminds us that navigating through the first six months was half the battle.

Photo WPX Energy Courtesy © Jim Blecha, www.oilandgasphotographers.com

Posted in 2017 E&P Budgets, OCTG, OCTG Consumption & Pricing, OCTG Forecast 2017, OCTG Imports, OCTG inventories, OCTG Mills, OCTG Pricing, OCTG Processors, OCTG Producers, OCTG Spot Prices, OCTG Trade Case, Oil & Gas Industry, Oil Patch, Oil Prices, Prime Pipe, Seamless Pipe, Section 232, steel industry, Tubular Goods, upstream OCTG | Tagged , , , , , , , , , , , , , , , | Leave a comment

OCTG ‘Crude’ for Thought 

Forest Oil Corporation, Granite Wash. Lantern Rig 14 on the Edwards 1-22H.

  Photo Marubeni-Itochu Tubulars America Inc.
Courtesy ©Jim Blecha: oiladngasphotographers.com.

Susan Murphy | Publisher of The OCTG Situation Report

Susan Murphy | Publisher

As May is historically a light news month and the first four months of this year have been unusually  weighty, we thought it might be prudent to review just how far the OCTG sector has come over the past year. Last year at this time the buzz in the oil patch revolved around “lower for longer.” This year the question is, how much higher and how much longer when it comes to a host of metrics, rig counts and pricing among them? Those are topics we’ll analyze next month in our 2H17 outlook.

No surprise: leading the charge is oil, the price of which has risen 21% over the past 12 months carrying all other related metrics along for the ride. The 80% surge in the US rig count has surpassed even the most bullish of forecasts despite range-bound WTI prices. This, of course, presents a catch-22: the rebound in the rig count and consequent ramp in US onshore production can come with a price tag that trickles down to OCTG. Weighing on oil’s fragile state are questions about OPEC’s direction for production quotas and their ability to adhere to them if agreed upon when members gather for their meeting on May 23.

While demand has driven OCTG prices north, most of the more significant gains we’re tracking owe their newfound vigor to the market tightness we’ve reported over the last couple months. OCTG raw materials have been in a state of flux of late, too, a fact that can’t be ignored when considering how this year may play out and not just for OCTG. U.S. HRC, which is ~$600/st (down from its Jan 2 high) is drifting lower given the recent free fall in iron ore prices. Since iron ore is integral to the steel making process, this crash has wide-ranging implications. Forecasters have predicted that iron ore, currently USD ~$60/st, will continue its decline, perhaps as much as ~20% over the course of the year. At the same time U.S. domestic scrap prices, which have buttressed domestic HRC prices, are also under pressure. The crackdown on illegal induction furnace capacity in China (the largest consumer of domestic Chinese scrap) prompted the country to jump on the scrap export wagon, a move that could depress US domestic scrap and HRC prices. What does this mean for OCTG? It means that OCTG producers who source third party raw materials will have an opportunity to recoup some of the heavy losses sustained over the past two years. And the fact is, domestic mills are now bearing the added costs of ramping up and need to do this to continue to serve a growing energy market.

All this brings us back to China, the world’s No. 2 economy and the epicenter of the demand debate for all things energy related. Most analysts will tell you that the crash in the commodity markets that commenced in mid-2014 was driven by the slowdown in the Chinese economy. While there have been reports that the Chinese economy will see accelerating GDP growth over the next couple of years many analysts aren’t buying it. And if the Chinese aren’t “buying it,” whatever “it” may be, its stability is likely to be challenged. These are the underpinnings of the concerns we have when we consider the fate of crude prices and ultimately OCTG for 2H17.

Meanwhile domestic and imported OCTG shipments are escalating at an intense velocity as everyone is eager to capitalize on this welcome window of growth. With inventories building as of 1Q17, even slightly, no one is immune to a correction in the oil markets. Every member of this tight knit community wants to be optimistic but there’s too much at stake to throw caution to the wind just yet.

As we contemplate what the balance of the year might bring, we can’t help but ruminate on the words of Charles Darwin who said, “It is not the strongest of the species that survives, nor the most intelligent. It is the one most responsive to change.” And that remains our takeaway—come what May.

Photo Marubeni-Itochu Tubulars America Inc.
Courtesy ©Jim Blecha: oiladngasphotographers.com

 

Posted in E&P, E&P spending, Energy, ERW Pipe, Hot Rolled Coil, HRC, Inventory, OCTG, OCTG Consumption & Pricing, OCTG domestic shipments, OCTG Exports, OCTG Imports, OCTG inventories, OCTG Mills, OCTG Pricing, OCTG Spot Prices, Oil & Gas Industry, Oil Country Tublular Goods, Oil Patch, Oil Services & Equipment, Prime Pipe, Seamless Pipe | Tagged , , , , , , , | Leave a comment

Following The 1Q17 OCTG Inventory Audit Trail

TSC Almeda two stacks crop-2smart-fix

Photo Courtesy Texas Steel Conversion

Susan Murphy | Publisher of The OCTG Situation Report

Susan Murphy Publisher

It’s that taxing time of year when readers of The OCTG Situation Report count on us to roll up our sleeves and crunch the numbers in preparation for our exclusive Inventory Quarterly. Our analysis, derived from our yard survey of the U.S. OCTG supply chain, is essential in bringing a high degree of certainty to an otherwise elusive inventory metric—a claim no other publication can make. And with that we commence our audit of first quarter inventories.

Inventories of “prime” U.S. OCTG moved up slightly in Q1. The bulk of the build in “tri-state” (TX, OK, LA) OCTG inventories was reported in the West Texas/Permian basin. The increase in tons from outside of the tri-state region Q/Q was attributed mostly to elevated levels of activity in the New Mexico/Delaware Basin and Niobrara shale plays.

Surging activity brought a mixed bag of increases and decreases throughout every product segment across the tri-state region this quarter. The most significant of the changes correlated with the areas of greatest supply tightness as well as new supply again this quarter. The gains posted in our separate survey of select OCTG distributors demonstrated a decided vote of confidence for the oil patch from this group. Complete details about first quarter inventories and all the OCTG metrics that matter is provided in the April OCTG Situation Report.

While the increase in inventory wasn’t of grave concern, it’s new trajectory gives us pause. We can’t help but be somewhat uneasy when monitoring import volumes of late especially considering the additional capacity that is coming online domestically. Since November 2016, imported tons have continued their upward march with the import-a-palooza showing no sign of attrition. The recent results of the administrative review of anti-dumping (AD) duties on imports of OCTG from South Korea for the period 7/18/14 – 8/31/15 concluded that prices of the hot-rolled coil used to produce OCTG as well as Korean electricity prices were distorted. The highest duties were determined for Nexteel. SeAH was assigned a token duty while “all others” will pay a slightly stiffer penalty. The nominal increase in duties that was determined for all but Nexteel suggest that it is business as usual for the rest of the South Korean exporters who will likely push through healthy increases in exports this year. Until then expect that pipe supplies will remain strained and prices will continue in a state of flux.

Returning to inventory, we’ve been tracking and reporting on “active” versus stalled and/or obsolete OCTG inventory since our first deep dive into this weighty subject last year in June. At this point in time our analysis has determined a fairly significant portion of current inventory is made up of stalled or “homeless” materials defined as uneconomically expedient pipe, premium/semi-premium threaded and “exotic” onshore OCTG. Another portion is made up of offshore materials that have been benched for the time being. Obsolete items account for the balance. Also, we remind readers that new OCTG sells before old, which further bedevils inventory concerns.

Bottom line: while it’s tempting to get swept up in the momentum of the moment, the upswing in inventories— however slight—reminds us that a degree of caution must still be exercised. Visibility into oil markets for 2H17 is limited and any disruption could easily tip the ‘shales’ out of our favor.

Posted in Department of Commerce, E&P, E&P spending, ERW Pipe, First Quarter, Hot Rolled Coil, HRC, Inventory, OCTG, OCTG Exports, OCTG Imports, OCTG Inventory Survey, OCTG Mills, OCTG Pricing, OCTG Processors, OCTG Producers, OCTG Spot Prices, Oil & Gas Industry, Oil Country Tublular Goods, Oil Patch, Permian Basin, Q1, Seamless Pipe, Shale, Shale Plays, steel industry, Steel Trade Case, Tubular Goods, U.S. HRC Spot Price, upstream OCTG | Tagged , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

2017 U.S. OCTG Mill Supply Forecast: The Million ‘Tubes’ March

voestalpine Tubulars: Seamless Tubular Products

Photo Courtesy voestalpine Tubulars

Susan Murphy | Publisher of The OCTG Situation Report

Susan Murphy | Publisher

The quote, “Prediction is very hard, especially about the future” captures the essence of the responses we received to our request for domestic OCTG mills supply forecasts in a year where uncertainty seems to be the only certainty. Thus, we braved this muddy matter with the hope of rising above the perils of prediction.

Our U.S. OCTG Mill Supply Forecast comes with the following set of assumptions for 2017: a) WTI averages $50 – $60/BBL; averages over or under this range will necessitate adjustments to the supply forecast and b) South Korea receives only a token increase in duties in the first OCTG anti-dumping (AD) administrative review scheduled for March 30 (with the possibility of an extension to April 12). We expand on this subject later in our editorial.

Our forecast reveals both domestic and foreign mills have the pedal to the metal potentially unleashing 112% more OCTG into the market in 2017 than 2016. The production of domestic seamless OCTG is expected to outpace that of welded, a trend that began in 2016 as the downturn lingered, HRC costs spiraled upward and mills struggled to stay busy. As the market continues to improve, the delta between ERW and seamless costs will widen making welded OCTG competitive for some of the more efficient mills and ERW’s market share will revert to more traditional levels. While seamless OCTG also occupies a greater piece of the import pie, we’ve increased the percent of welded imports Y/Y in the belief that South Korea will hike their shipments to levels closer to that of 2015 if the administrative review is decided in their favor.

Insofar as the final duties in the South Korean AD case are concerned, we’ve vetted every possible scenario only to arrive at an impasse. There’s the possibility that Trump’s team of protectionists including steel advocate, Secretary of Commerce, Wilbur Ross, could rule in favor of a more aggressive stance against South Korea. There’s also the case for the knock-on effect of the tariffs the Department of Commerce assigned to Korean steel producers in the HRC case, which exercises new powers granted under the Trade Preferences Extension Act of 2015 making it easier for industries to demonstrate injury. In this way, Korean OCTG producers are at greater risk for allegedly relying on Korean-produced HRC as well as dumped Chinese HRC to manufacture OCTG at export prices that arguably constitute dumping. Coupling this with the news that the Trump team is exploring alternatives to taking trade disputes to the World Trade Organization makes this case a “slam dunk” for some speculators.

But before anyone drops the mic and pops the cork there’s another side to the story and one that merits serious consideration especially as it applies to our relationship with our ally South Korea: geopolitical unrest. The fragile state of political affairs in both North and South Korea could outweigh the domestic steel industry interests in the near term, resulting in a nominal increase in duties for this first review. While there are strong arguments for either outcome, the recent announcement from U.S. Secretary of State Rex Tillerson that “the threat of North Korea is imminent,” puts us in the latter camp until further notice.

Meanwhile, this fickle situation is having a decided impact on the state of U.S. OCTG. To say that OCTG is in a “tight spot” is to put it mildly. Mills are under the gun to produce, expected to ramp up from near zero to sixty. Distributors are leaving no stone unturned in their search to find high demand products or offer substitutes. Korean importers and producers are in limbo, unsure whether to ship out or abandon ship. Operators are left feeling the heat as OCTG pricing stages a brisk recovery with mill price increase announcements coming fast and furious. If drilling activity continues unfettered, mills are expected to catch up with demand sometime in August. The question is: can this level of activity be sustained throughout the year? We all know when pipe isn’t moving downhole things go downhill and no one is eager for those days to return.

With OPEC determining a course for their May meeting, oil markets getting spooked and the specter of cost inflation looming, the tubular market hangs in the balance suggesting another test of our industry’s ‘metal’ may be on the horizon. So, what’s a pipe ninja to do? Unpredictable times call for unconventional wisdom: a reminder that reality is rarely ‘oil’ or nothing.

Photo Courtesy voestalpine Tubulars

Posted in E&P, Energy, ERW Pipe, OCTG, OCTG Consumption, OCTG domestic shipments, OCTG Imports, OCTG Mills, OCTG Trade Case, oil country tubular goods, Oil Patch, Oil Services & Equipment, Onshore, Seamless Pipe | Tagged , , , , , , , , , , , , , , , , | 2 Comments