Will The 232 Rain On The Oil Patch’s Parade?

EPEnergy June 2018 Cover crop 150dpi_edited-1

Photo Courtesy EP Energy

Susan Murphy PublisherMaybe it’s the heat, maybe it’s the market but this month everyone in the oil patch seems to be fired up about something. Fortunately for us they’re talking; offering an insightful barometer of upstream confidence throughout the supply chain. Foremost among the “hot topics” is the Section 232, which shows no signs of running out of steam anytime soon. As it stands right now the EU, China, Russia, Mexico and India have all filed dispute settlement cases against the US for its 232 tariffs via the World Trade Organization. These are in addition to the retaliatory measures that have been brought forth by the same five countries. Other countries including Japan, Russia and Turkey have warned of potential retaliation but haven’t released formal documents. Congressional efforts to “gain authority” over the Section 232 decision will be discussed in a hearing set for June 20. 

Meanwhile, our June confabs ran the gamut from the administration’s unpredictability to the need for mills to make hay while the sun shines. Most of the concerns boiled down to the inability of participants to plan ahead; leaving many in a quandary over the “optimum inventory” for the yearend. This month’s conversations also highlighted operators’ categorical resolve to live within budget and how OFS inflation could dampen activity. 

Insofar as inventory levels are concerned, historically there has only been seven quarters that exceeded 1Q18 ending inventories. The record levels were recorded between December 2013 and June 2015 when two significant events converged to create a perfect storm: a tsunami of imports and the downturn. Current elevated inventories will serve as a buffer as the tide of imports is stemmed. 

Our well ’versed’ responders were of the mind that pipe shortages in 2H18 will be few and far between due to the steady pace that’s allowing mills to ramp up capacity (where available) and build inventories in advance. Lack of domestic availability was behind the surface casing item that received the most mentions in terms of potential scarcity. Tubing as a category also received top billing but more so as it related to anticipated price hikes: again this is due in large part to the difficulty in domestic sourcing. Opinions were decidedly more mixed when it comes to pinning down a time for pricing increases. We discuss specifics in this month’s OCTG Situation Report.

When queried about issues outside of the cacophony of the 232 there was definitely a degree of bullishness from most parties. The overriding driver of positivity is the likelihood that worldwide oil demand will continue to rise provided there are no black swans on the horizon. With OPEC now more inclined to promote ‘higher’ for longer and international spending/exploration at historic lows, the global market is increasingly dependent on the US for oil. This should help sustain the crude rally over the next couple of years. 

With that said, if you can’t stand the heat get out of the oil patch. For the time being, this market is piping hot! 

Photo Courtesy EP Energy

Posted in Crude Oil Prices, Department of Commerce, E&P, Energy, OCTG, OCTG Exports, OCTG Imports, OCTG Mills, OCTG Pricing, Oil & Gas Industry, Oil & Gas Pricing, Oil Country Tublular Goods, Oil Patch, Oil Services & Equipment, Onshore, Prime Pipe, Seamless Pipe, Section 232, Steel Tarrifs, upstream OCTG | Tagged , , , , , , , , , | Leave a comment

Surviving Post-Traumatic ‘232’ Disorder

Southwestern Energy Corp

Photo Courtesy Southwestern Energy Corporation

Susan Murphy PublisherAs we barrel ahead toward summer in the oil patch there’s an intermittent up-stream of opportunities for various sectors of the supply chain that are in a position to capitalize on them. Be that as it May, suppliers of OCTG have reported suffering a little post-traumatic ‘232’ disorder.

In this regard, the market is having a “wait and see” moment as 11th-hour reprieves were handed to Canada, Mexico and the European Union, all of whom now have until June 1 to negotiate exemptions from the 25% US steel tariffs that are in effect for all other nations except South Korea. South Korea—the only country where agreements have been finalized—has accepted quotas in lieu of tariffs. We discussed this arrangement in detail in our April 2018 Report. Since that time, it has been determined that the South Korean quota is retroactive to January 1, 2018, that quotas are not transferrable among products and the US will block any imports from Korea that exceed the country’s quota ceiling: 30% of which can be imported in any given quarter. Imports above the quarterly threshold will be temporarily stored at numerous bonded warehouses across the US. Options after the total quota limit is reached include warehouse, foreign trade zone, exportation, or destruction. It should be noted that Korea is rapidly closing in on its OCTG quota threshold: as of Monday, May 21 there is only ~119K st left for importation for 2018.

Most recently the US agreed in principle to quota arrangements with Argentina, Brazil and Australia but details have not yet been published. The process promises to be protracted as more than 10,000 exclusion requests have been filed thus far and that is only the half of it. On May 17, it was announced that the EU is set to impose a 25% “rebalancing” trade tariff on $3.3bn of US goods June 20 with an additional $4.2bn worth of US goods seeing tariffs ranging from 10 – 50% on March 23, 2021 if they don’t receive an unconditional and permanent exemption from the tariffs. The EU has a greenlight to implement the tariffs unless the Council for Trade in Goods disapproves. The initial tariffs are said to hit a variety of US agricultural, tobacco, textile, steel and many other products. The second wave of tariffs will expand on that list. Beyond that development, US ally Japan has signaled its intent to pursue retaliation through the WTO in response to the tariffs equal to $450MM in affected trade, stating that their high-value steel and aluminum products have never “been a threat” to US national security. China and India have made similar arguments to the WTO as well. Whether or not the WTO can grant relief for countries intent on challenging the 232 remains to be seen. Moreover, the WTO dispute settlement system is tedious at best.

Meanwhile, back at the ranch, drilling continues to hum along propelled by OPEC’s efforts to curb output in addition to unstable geopolitical events. US operators, especially those unbound by hedges that prevent them from capturing the value of the rally, are having a field day gushing over the opportunity to make hay while the sun shines. Regardless of the current reality, due to the boom and bust nature of the business, apocalyptic admonitions go with the territory. Foremost among them is the concern that rising DUC (drilled but uncompleted well) counts—currently the highest since mid-2016 could be an unwanted disruption in a volatile oil market. However, the potentially destabilizing force of rapid deployment of DUCs or even an over-enthusiastic drilling response could easily be hampered by the lack of Permian takeaway capacity, transportation bottlenecks, and/or tight availability of frac crews/sand along with unmitigated cost inflation. Despite these challenges and pledges of capital austerity, five months into 2018, E&P C-suite sentiment is mostly, “Damn the torpedoes! Full speed ahead.” This, of course, is propitious for suppliers of OCTG who stand ready to keep things rolling.

All of this leads us to our consumption forecast update for 2018, provided in our May  Report; which while in keeping with the fervor of current drilling activity is tempered by some of the challenges mentioned in our editorial above. 

As we peer across the OCTG landscape most of the major market indicators remain encouraging. Once E&P spending surveys are updated next month and we present our 2H18 outlook, we’ll be able to confirm speculation that upstream spending is on the upswing. For now, it’s safe to say, all’s well that ends well come what May.

Photo Courtesy Southwestern Energy Corporation

Posted in 2018 E&P Budgets, Department of Commerce, DUCs, E&P, E&P spending, Energy, ERW Pipe, Hot Rolled Coil, HRC, Inventory, OCTG, OCTG Imports, OCTG inventories, OCTG Mills, Oil & Gas Industry, Oil & Gas Pricing, Oil Country Tublular Goods, Oil Patch, Oil Prices, Oil Services & Equipment, Onshore, Pipe, Seamless Pipe, Section 232, steel industry, Supply Chain, Tubular Goods, U.S. HRC Spot Price, upstream OCTG, WTI prices | Tagged , , , , , , , , , , , , , | Leave a comment

Q1 OCTG Inventory Yard Survey: The Gold Standard

OCTG April 2018 Cover - Liquidity Services

Photo Courtesy Liquidity Services, Inc.

Susan Murphy PublisherWhen it comes to wealth every quarter counts. It’s no different in the oil patch where our subscribers count on our exclusive quarterly OCTG Inventory Surveys to provide them with a wealth of knowledge about the health of the upstream market by measuring demand for OCTG. For this, we survey the entire supply chain including truck terminal, mill, processor, and inspection yards throughout the lower 48. Our tally for the period ending March 31 reveals inventories expanded for the fifth consecutive quarter with the bulk of increases posted in the mill/processor category. 

Here’s how Q1 inventories stacked up throughout the country: L48 “Prime” OCTG stockpiles increased +3%. While that may not sound like a great deal, the last time we reported inventories close to this total was 3Q15 at the end of an extended period of rampant imports. The “tri-state” (TX, OK, LA) region swelled by +4% Q/Q, while inventories outside the tri-state shrunk a nominal -<1%. Sorting through the various products, our survey shows that tri-state alloy stockpiles proved their ‘metal’ growing +6% Q/Q. With the exception of our recent quarterly adjustment (to fold in newly added OCTG yards) in 3Q17, this was the largest quarterly jump in alloy inventories since 1Q15. A recent spate of tubing imports was responsible for inflating tubing stockpiles this quarter. In anticipation of the 232 decision and the second Antidumping (AD)/Countervailing Duty (CVD) administrative review on OCTG imports from South Korea, tubing inventories rose sharply and strategically +17%, resulting in the largest hike we’ve witnessed Q/Q since the Chinese import surge back in 1Q09. The only decrease in inventories observed this quarter was that of carbon stocks, which saw a slight drop decreasing -<1%. 

Meanwhile, the final determination of the anti-dumping case against Korean OCTG handed down April 11 that could have struck another blow turned out to be a non-event. So, for now, the only trade defense measure that has the potential to offer relief is that of the KORUS agreement. 

While inventories are historically high there’s a number of reasons to remain encouraged at least in the short term. Barring any economic hiccups, summer in the oil patch looks to be one of all systems grow. To start with, the ‘Oiligarchs’—senior OPEC officials from the world’s biggest crude producing countries—met this past Friday to assess compliance to cutting crude production and reaffirm their commitment to achieving the rebalancing of the global oil market. This offers some insurance that WTI won’t fall off a cliff provided that the escalating trade dispute between the US and China doesn’t upset the apple cart or the oil cartel. The market is also waiting to see how the president will handle sanctions on Iran as the May 12 deadline approaches. With oil prices currently at three-year highs helping to bolster onshore OCTG consumption and the likelihood of OCTG imports being slashed as the date for the expiration of the Section 232 tariff exemptions (for Argentina, Australia, Brazil, Canada, E.U., & Mexico) draws near, the supply side is prepared to strike while the iron is hot. 

For any parties banking on the benefits of the Section 232, gains could be short-lived if cost inflation and supply disruptions derail E&Ps’ best laid drilling plans. This is a decided concern with regard to the South Korean “KORUS” Free Trade Agreement that was drafted in lieu of the 25% tariff, where Koreans agreed instead to a quota that will reduce their OCTG imports to the US. As of yet there is no determination on whether the quotas will expire after a set time. The quota agreement means a significant volume of Korean upstream OCTG will not make it to the US this year. The same quota ruling also applies to line pipe and hot rolled coil among other metal products. If demand continues at a high level throughout the year this could wreak havoc on supply especially as domestic tubing capacity is greatly limited and much of the surface casing has been supplied by importers as well. One significant caveat: we still await a final decision on when the quotas go into effect and if they will be prorated. That makes a big difference. 

What we do know (at least until the next U-turn) is that the OCTG market will continue to be in a state of flux until the dust settles on the 232. Between now and May 1 there will be a lot of jockeying for position as countries negotiate some sort of relief or country exemption to the 232. Further details can be found in our April Report.

And so, we come to the close of another month in the oil patch and the all ‘important’ question remains: how does this situation play out? Our money is on the ancient Chinese philosopher Lao Tzu who said, “Those who have knowledge don’t predict. Those who predict, don’t have knowledge.” ‘Nuff said. 

Photo Courtesy Liquidity Services, Inc. | Network International

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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