Well, the OCTG industry got through the hot and humid “dog days of August” without too many business issues, although some say that there are mounting short term concerns. Supplies are building, product mix has changed considerably, prices are “flattish” and imports are fueling more uncertainty again. So with 4.2 months to go to finish out the year, Let’s take a quick look at where we think the industry is headed.
The stats on drilling permits continue to suggest that there is a likelihood that drilling activity might sag in the remaining months. In spite of this prevailing forecast, drilling activity keeps on keeping (i.e. continuous monthly increases). Energy prices seemed to be backing off at the moment as continuing concerns mount about the U.S. economic recovery. However, after reviewing all the primary OCTG business drivers, it looks like 2010 is shaping up to resemble 2006, in terms of tonnage consumption. Back then, drilling activity averaged 1,648 and we may be a bit shy of that this year.
Consumption was 4.2 million tons then but that is likely to be exceeded this year at around 4.3 million tons, 51% increase over ’09. Now we are the first to admit that there are some big changes going on in product mix, particularly with the advent of the shale plays and temporary absence of the Gulf drilling. Imports back then were 49% of consumption and that share is likely to be exceeded. Better keep an eye on inventories. However, from where we sit, 2010 is going into the record books as a very good year. This year’s quarterly progress in the consumption sector is encouraging.