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

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