OCTG By Numbers

Photo Cimarex Energy Courtesy © Jim Blecha Photography, Inc.

Photo Cimarex Energy Courtesy © Jim Blecha Photography, Inc. www.oilandgasphotgraphers.com

Susan Murphy PublisherAs we prepare for our publication’s annual ‘state of the industry’ address every February we often find clues in past years’ metrics and this year is no different. With questions looming about the Section 232, 2018 E&P budgets, L48 hydrocarbon production and oil at $60/bbl…will we find strength in numbers this year or are we looking at a catch-22?

The year-end OCTG stats found in our table on page 6 zero in on the trends that defined the OCTG market over the past three years. Although we deal with these stats daily, seeing them stacked side by side in a table is always enlightening. While there were numerous encouraging entries for 2017, continuing OCTG-intensity per rig among them, there are a couple of telling metrics that stand out as prognostic. One of the most alarming is imported OCTG’s market share, now at a level last seen in 2008 at the height of the Chinese pipe surge. While domestic OCTG shipments increased by 110% Y/Y, imported shipments ballooned by 197%. There’s simply no downplaying this matter. The other issue, albeit of less trepidation if oilfield activity remains strong, is the 2017 inventory build at +23%—the largest accumulation of OCTG stockpiles Y/Y since 2008. The inventory overhang contributed to the elevated yearend months of supply.

Clearly the domestic industry’s biggest threat is unbridled imports, which leads us to the minefield known as the Section 232 debate. For a thorough briefing on the 232 investigation, subscribers can review our August 2017 Report. Our commentary this month deals more specifically with the 11th hour Commerce Department recommendations that may or may not be heeded by the president who has great latitude in determining the policy outcome. The White House has until April 11 to announce its decision and then 15 days to implement the policies. The bottom line on the investigation was that Commerce determined, “the displacement of domestic steel by excessive imports is weakening our internal economy and therefore threatens to impair the national security as defined in Section 232.” Many remain skeptical about the “national security” invocation, others are concerned about retaliatory measures that will likely be taken by the countries impacted as well as unintended consequences that could trickle down to peripheral US industries.

Three options have been drafted by the Department of Commerce: 1) a blanket tariff of 24% on all steel imports from all countries, 2) a 53% duty on imports of steel from 12 countries (Brazil, China, Costa Rica, Egypt, India, Malaysia, S. Korea, Russia, S. Africa, Thailand, Turkey & Vietnam) with other countries able to export at 100% of 2017 levels (product specific), but face tariffs above that, and 3) no tariffs but a quota on all steel products from all countries equal to 63% of the countries’ 2017 exports to the US. While none are a panacea, the first “remedy” simply doesn’t have the teeth needed to stem the tide of current OCTG imports. The second option might be considered heavy-handed and more likely to incite retribution by the countries named. If it were applied to 2017 imported OCTG counts it could potentially reduce the count by slightly more than the third option (largely ERW material) but may not be worth the risk of retaliation. Doing the math on the 63% quota recommended in the third alternative would leave domestic suppliers to pick up the slack from the removal of imported tons, which is doable. Granted, this would likely create shortages on high demand items in the near term but some of the potential shortages could be met with existing, historically lofty, inventory supplies. Pricing would rise further as domestic mills rush to fill the gap but should settle down as the backlog is worked through. This also assumes that demand continues strong, despite these measures. However, a tubing problem still exists as domestic sources have contracted over the years. Perhaps a revised quota percentage could be negotiated if the exporters would agree to only ship certain sizes/ranges? That might be one solution.

With current HRC prices at a six-year high and recently announced mill price increases on the books, herein lies another concern that must be weighed when it comes to trade protection on “all steel products.” That is the additional cost to raw materials; its impact on OCTG pricing, and its trickle-down effect.

While traditional OCTG trade actions have mostly failed, no action is without risk. The danger in oppressive policy is upsetting the fragile trade balance that exists as well as hampering our country’s efforts toward energy independence, which should also be considered a matter of national security. If the actions taken by our president cause OFS costs to skyrocket, E&Ps will be hard-pressed to continue the robust activity that has helped OCTG stage a partial recovery from the recent downturn.

While there are any number of ways things could go in the year ahead, Warren Buffet sums up the best defense: “Predicting rain doesn’t count. Building arks does.” 

Photo Cimarex Energy Courtesy © Jim Blecha Photography, Inc. www.oilandgasphotgraphers.com

Posted in 2018 E&P Budgets, Department of Commerce, E&P spending, Energy, ERW Pipe, HRC, OCTG, OCTG Exports, OCTG Imports, OCTG inventories, OCTG Mills, OCTG Pricing, OCTG Processors, OCTG Producers, OCTG Trade Case, Oil & Gas Industry, Oil & Gas Pricing, Oil Country Tublular Goods, Oil Patch, Oil Services & Equipment, Prime Pipe, Seamless Pipe, Section 232, Steel Trade Case | Tagged , , , , , , , , , , | Leave a comment

4Q17 OCTG Inventories: Not All Black & White

OCTG Report - LB Foster - January 2018 Cover Photo

Photo Courtesy LB Foster Company

Susan Murphy PublisherAs we zoom past 2017 it’s time to bring focus to the current OCTG inventory situation. 4Q17 OCTG inventory results are best framed as a tale of two ‘quarters.’ There is simply no way to provide a clear snapshot of the outcome without looking back to the second quarter of 2017 and reminding our readers that we make any necessary adjustments to our inventory yard results once a year in January in order to accommodate new OCTG yards that come onboard. With that said, five new OCTG yards located in the “tri-state” (TX, OK, LA) area and outside the region were folded into our 3Q17 results and carried forward to Q4.

Before we get ahead of ourselves, it’s important to review the reason why we host this survey and what’s in it for readers. Our OCTG Inventory Yard Survey is the only one of its kind the world. Published every quarter, it is designed to assess the health of the industry by measuring demand for OCTG throughout the entire supply chain (truck terminals, mills, processors & inspections yards) across the lower 48. It’s impossible to accurately calculate this metric and all the data points that are derived from it (apparent consumption, months of supply) without this labor-intensive analysis.

Looking back to 2Q17 ending inventory and fast forwarding to 4Q17 our most recent survey of the US supply chain reveals that OCTG inventories rose by a low double-digit figure over the six-month period. If we were to simply zero in on the difference between Q3 and Q4 (after the above noted adjustment in tons was made) the results would suggest a mere increase in tonnages +<1% Q/Q. In view of the staggering volume of imports that landed on our shores in the second half of 2017, that conclusion would raise more questions than it answers. For perspective, it has been four years since we’ve witnessed this degree of inventory build. That accumulation coincided with the last major OCTG trade case that was filed in July of 2013.

With the bulk of increases posted in the mill/processor category as manufacturers ramped production in both Q3 and Q4, here’s how tri-state inventories stacked up at the year’s end. Welded stockpiles swelled each of the past three quarters. The bulk of the bulge in welded tons were recorded in Q3 at the height of the 2017 import surge. Carbon OCTG stocks also showed significant growth over the past six months. Not surprisingly, the jump in carbon tons came along with the acceleration in ERW materials in Q3. OCTG casing stocks have been advancing on inventories since 1Q17, with the greatest influx registered in Q3. Bottom line: had it not been for robust drilling activity that dominated most of 2017, the deluge of OCTG imports could have easily turned the tale of two quarters into the ‘battle of the bulge.’ Details about our exclusive survey can be found in the January OCTG Situation Report.

Meanwhile leading indicators suggest we’re looking at a mostly happy yet invariable new year with the exception of escalating imports that threaten to erode some of the recently restored oil patch ebullience. With the ‘oily’ grail of E&P spending—crude prices—trading in positive territory, Evercore ISI is predicting a 15% lift to US capex in 2018 with Canada trailing slightly behind at 9%. But there’s more. Since cash flow will be the leading determinant of spending, the higher hydrocarbon prices provide greater latitude to spend more and still remain within cash flow. The long-awaited Section 232 investigation recommendations were delivered this month and now requires a decision from the administration based on the report’s findings within 90 days. While details of the report have been withheld expectations are mixed. Most parties agree that without a +30% or higher tariff imports are likely to continue unabated, especially since more countries entered the fold ahead of anticipated tariffs. Such Draconian measures would shore up OCTG prices in late 1H18. Short of that, added domestic capacity and passive drilling activity will continue to pressure pricing. The only real opportunity for price improvements, without a meaningful but unforeseen boost in D&C activity, is higher input costs. Currently US HRC is trading at three-year highs aided by the increase in international prices. Demand from major steel-consuming end markets is steady and poised to rise further in 2018, which encourages HRC mills to set their sights on serving the most prolific customers—no longer the domain of tubular manufacturers.

All things considered, it is our candid view that the year in OCTG won’t be picture-perfect but there’s a good shot it will leave many smiling.

Photo Courtesy LB Foster Company

Posted in 2018 E&P Budgets, OCTG, OCTG Consumption, OCTG Consumption & Pricing, OCTG domestic shipments, OCTG Exports, OCTG Imports, OCTG inventories, OCTG Inventory Survey, OCTG Mills, OCTG Pricing, OCTG Processors, OCTG Producers, upstream OCTG | Tagged , , , , , , , , , , , , , | Leave a comment

2018 OCTG Forecast | What’s in the Cards for the Coming Year? 

Anadarko November 2017 Cover

Photo Courtesy Anadarko Petroleum Corp.

Susan Murphy PublisherEach November we examine numerous oilfield metrics to determine what might be in the cards for the coming year. Will the deck be stacked in favor of or against OCTG in 2018? Here’s our read.

On November 30, the powers that be (OPEC) met to determine whether to double down on the production quotas they curbed (first time in eight years) in a bid to support prices when they gathered last year in November. The odds were that the cuts would be extended beyond the March 2018 expiration and that was the outcome. Although geopolitics remain a wildcard in the high-stakes game of oil price roulette, the current outlook is mostly bullish with global demand soaring in addition to strong economies in the US and Europe and near record crude imports in China.

At press time WTI was ~$58/bbl—a potential ace in the hole for US drilling & completion activity moving forward. The fact that the oil price rally occurred about the time shale-blazers were talking turkey regarding 2018 E&P budgets could prove propitious, even though it doesn’t guarantee capex increases at a time of operator focus on returns over growth. Three years of flagging oil prices have constrained global investments in conventional projects leading us to believe that oil prices are poised to move higher over the next couple of years provided there are no black swans on the horizon. Thus, we are predicting choppy oil prices throughout the coming year and a bump in the rig count for 2018. We expect the rig count ramp-up to come in fits and starts throughout 2018. This helps to establish a framework for our OCTG consumption projection, but that comes with some caveats as well. Greater detail on all of our many forecasts can be found in this month’s Report.

We’re forecasting demand for OCTG will improve incrementally boosted by growth in the rig count but we’re holding our 2018 consumption/rig stats essentially in line with 2017 due to the likelihood of fewer wells per rig (i.e. lowered efficiencies mostly due to changing experience levels of drilling crews during rig count recoveries) over the coming year. Greater per well footages stemming from longer laterals will help to offset losses from lower well counts/efficiencies. Oilfield research firm Infill Thinking recently reported that as the tight oil industry evolves this cycle, a growing sub-surface footprint (measurable in frac sand volume) is replacing surface sprawl (i.e. rig and well counts). In 2017 and 2018, Infill Thinking projects US well counts to average about half of the prior cyclical high. Meanwhile, Lower 48 oil production is growing just as fast as near the prior peak thanks to improving reservoir contact and recovery in tight oil intervals. Sand volumes doubling up from prior peak volumes help explain how the tight industry is growing like before but with fewer wells drilled.

When it comes to the OCTG pricing outlook for 2018 all bets are off but we’re willing to step into this minefield for the sake of our loyal readers. The difficulty with this forecast comes from the fact that there is a multitude of potential actions buffeting this metric: from rampant OCTG imports to the 232 investigation—even the ramifications of dissolving NAFTA. Starting with imports, there’s a clear and present danger in the excessive volumes we’ve witnessed this year. With a market share of 59% YTD, the peril of imports doesn’t end at pricing: it erodes the domestic OCTG industry as a whole. The 232, facing a looming report deadline of January 22, 2018, has further confounded the market leading to a barrage of exports from a host of countries all vying for new opportunities and utter bewilderment for suppliers of tubular products trying to address RFPs. Implementation of tariffs on pipe/steel from Mexico or Canada, if they were to be enacted, could benefit US pipe producers in the long run (market share/pricing), but at what cost to overall trade?

As we move toward the close of another year in the oil patch we’re reminded, no matter what’s in store for the coming year, that life isn’t about holding all the cards but playing those you hold well. Game on! 

Photo Courtesy Anadarko Petroleum Corp.

Posted in OCTG, OCTG CAPEX | Tagged , , , , , , , , , , , , , , , , , , , | Leave a comment

OCTG Q3 Inventories: “Back to the Future”

Photo Courtesy John Lawrie Tubulars Inc

Photo Courtesy John Lawrie Tubulars Inc.

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

Susan Murphy/Publisher

Another quarter wrapped; time to zoom in on the results of The OCTG Situation Report’s exclusive OCTG inventory yard survey. First, we want to give props to the cast and crew who work behind the scenes to make this production possible each quarter. Much credit goes to the numerous supply chain professionals who inventory pipe at truck terminals, mills, processors and inspection yards throughout the lower 48 every three months.

Q3 could easily be titled, “Back to the Future,” as imports managed to steal the show—again. Inventories of “prime” OCTG in the US ballooned +8% for the period ending 9/30/17. We haven’t witnessed a consecutive escalation in tonnages to this degree (that wasn’t driven by a third quarter adjustment necessitated by the addition of new OCTG yards) since the second and third quarters of 2010. At that time, the market was picking up steam following the final ruling in the OCTG trade case brought against China in 2009. The storyline this quarter is much the same, only the actors have changed. In the “tri-state” (TX, OK, LA) area where stockpiles of OCTG are most concentrated, inventories escalated +9%. Processors in this cluster of states reported the greatest build Q/Q. OCTG inventories outside of the tri-state advanced a marginal +5% this quarter.

Not surprisingly, product segments driving the increase in inventory tons this quarter were welded materials and carbon grades. ERW stockpiles saw their second consecutive quarter of triple-digit increases. This is the second significant increase in ERW following eight consecutive quarters of decreases. Carbon stocks bulged in Q3 as well: here we noted a triple-digit increase that hasn’t been seen since 3Q14, which was precipitated by a steady period of high volumes of imports. Needless to say, if imports continue to ratchet up they will most definitely prove to be a spoiler when it comes to the opportunity for a full recovery for the OCTG market. Further detail along with an analysis of “active” versus stalled and/or obsolete OCTG inventory is presented in this month’s OCTG Situation Report.

Meanwhile the delay in the Section 232 trade investigation (discussed in our August  Report) has only aggravated the import situation, leaving many in limbo. Imports of steel products, in general, have risen sharply since the 232 was announced suggesting that exporters are less and less concerned about the potential threat to quell shipments and simply want to unload stock while they can. Commerce Secretary Wilbur Ross has announced that the 232 report will be deferred until progress is made on tax reform but the time for decision is drawing near as Commerce must complete its investigation by January 14.

2018 US E&P spending plans have yet to be released although consensus expectations call for +10% to 15%, which offers a glimmer of hope that the market won’t fall off a cliff but plenty of challenges remain. The market for OCTG is faced with significant overcapacity issues and these won’t simply fade to black. Imports of OCTG are surging again and the 232 trade investigation mentioned above only adds to the mounting concerns. While completions activity remains resilient and producers are hedging 2018 production at +$50/bbl, the prospects for next year are not yet in focus.

Turning to coming attractions for the year’s end: our 2018 annual OCTG forecast is set for worldwide release this November. Will the coming year be a blockbuster, an outright bust, or a mixed picture? Stay tuned to next month’s sequel to learn what’s in the pipeline…

Photo Courtesy John Lawrie Tubulars Inc.

Posted in 2017 E&P Budgets, Department of Commerce, DUCs, E&P, E&P spending, Energy, ERW Pipe, HRC, Inventory, OCTG, OCTG CAPEX, OCTG Consumption, OCTG Consumption & Pricing, OCTG domestic shipments, OCTG Exports, OCTG Forecast 2017, OCTG Imports, OCTG inventories, OCTG Inventory Survey, OCTG mill, OCTG Mills, OCTG Pricing, OCTG Processors, OCTG Producers, OCTG Spot Prices, OCTG Trade Case, Oil & Gas Industry, Oil & Gas Pricing, Oil Country Tublular Goods, Oil Patch, Oil Services & Equipment, Onshore, Prime Pipe, Q3, Seamless Pipe, Section 232, steel industry, Steel Trade Case, Supply Chain, Third Quarter, Trade Case, Tubular Goods, upstream OCTG | Tagged , , , , , , , , , , , | Leave a comment

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