The month of August is zooming by, time to focus in on the state of OCTG circa summer 2014. The big picture would seem to suggest the outlook for the second half of the year remains encouraging. While we’d like to remain positive, we need to be cognizant of all that’s developing in and around the oil patch. Here’s a snapshot…
For starters, the International Trade Commission ratified the final decision made by the Department of Commerce in July and voted unanimously in favor of domestic producers with their final injury determinations on August 22. The bottom line: imports from six countries were found to be harming the domestic industry and thus are subject to anti-dumping duties. Those countries are: India, South Korea, Taiwan, Turkey, Ukraine and Vietnam. As a result, the U.S. DoC will issue anti-dumping duty orders on imports from India, Korea, Taiwan, Turkey, Ukraine and Vietnam and countervailing duty orders on imports from India and Turkey. It was determined that OCTG imports from the Philippines and Thailand were not injuring the U.S. market. Saudi Arabian OCTG shipments are also not subject to duties after a recalculation by the ITA amended its dumping margin to de minimis.
The ‘oily’ grail of current E&P spending, crude pricing, has been bouncing around a bit of late but the Energy Information Administration’s most recent price forecast calls for WTI crude to average $100.45/barrel for 2014. Nat gas pricing is projected to average $4.46/MMBtu for the year. While there is heated debate taking place regarding crude supply (just enough/too much?) at the moment, both of these forecasts bode well for fueling healthy oilfield spending for the balance of the year. Quarterly earnings for tubular companies were mostly positive this quarter, signaling a more upbeat environment and an improvement over recent quarters. Insofar as imports are concerned, some declines from countries called into the OCTG trade case are becoming obvious in analyzing the most recent license data for the month of July. Korean shipments are not among them, although early license data for August suggests some tapering in tonnages. Whether the modest duties on imports from Korea prompts a sharp drop in their OCTG volumes remains to be seen however some reduction is expected.
This brings us to examine OCTG pricing for the 2nd half of 2014 going into 2015. We start with the assumption that hydrocarbon pricing remains in close proximity to the EIA’s forecast above. This would engender steady upstream spending until budgets are exhausted (through Q3 in most cases) and a return to more robust spending in the first quarter of 2015 once the new budgets are ironed out. Provided final ITC OCTG determinations are in favor of domestic producers, we believe that the narrowing price differential between domestic and imported OCTG will lead to renewed interest for domestic product. Further discussion is presented in our editorial in this month’s OCTG Situation Report.
To frame this month’s Report and put the details above in perspective, it is our candid view that the year in OCTG may not be picture-perfect but there’s a good shot it will leave many smiling.