This month we connected with distributors across the U.S. to see what they were anticipating in Q4 business activity. One thing clearly comes through; there is no slowing of program activity in the remaining months of the year, but a consensus emerged about certain concerns which seem appropriate to mention.
One of the two primary concerns is the perception that distributor OCTG inventories are bulging and some questions about the proper product mix. Out computer model supports this observation, but we will get a more precise handle on the relative figures next month when our quarterly inventory yard survey is completed. That number will pin down months of supply which is also important.
The second concern is the amount and rate of pipe imports coming into the Unite States. That is a indisputable fact. If you track the tonnages, they have risen to new highs not seen since Jan/Feb of ’09. Further, they are now surpassing domestic mill monthly shipments. It almost seems like Deja Vu all over again. Only this time the primary countries have changed and the competitive margins are different.
Despite the positive feedback from oil/gas companies of good Q4 prospects, there is an underlining consensus by distributors that the drilling activity will not hold at the current levels because of the mounting uncertainty regarding U.S. energy policies. Then there is the issue of more domestic pipe capacity coming on stream and how that might affect the business climate. Many distributors are beginning to make plans for next year in face of all these unknowns. And they are beginning to wonder about the potential headwinds that could develop over the forthcoming months of 2010-2011. For sure, the industry has a lot of balls up in the air!