We’ve made it through the end of a grueling third quarter; time to tackle our Q3 Inventory Yard Survey. The goal of our exclusive survey remains the same: measuring demand for upstream OCTG and reading the signals that gauge the health of the sector. This task involves a myriad of players as we collect data from truck terminals, mills, processors and inspection yards throughout the entire U.S. supply chain. Results for the period ending September 30 suggests an all-out blitz to sweep out inventories ensued, culminating in a significant decline in tonnages. In fact, the last time we saw this notable of a reduction Q/Q was in late 2009. Notwithstanding the strides made in paring inventories, months of supply for the quarter increased marginally due to the decrease in consumption in Q3.
Despite depressed demand and sparse order activity, mills report steady movement of smaller OD, alloy casing with semi-premium connections. It’s also worth noting that ERW import counts fell off approximately 55% this quarter. That together with increased ERW usage contributed to the drop-off in inventories.
The elephant in the oil patch seems to be which OCTG producers might succumb to the downturn. Clearly the turf war ‘rumor mill’ is working overtime. Until we have absolute proof, we deem this speculation ‘idle’ chitchat. While it’s true that many domestic mills have had to cut shifts, trim staff and suspend operations – a couple even filed for bankruptcy protection – as of this moment no U.S. mill has formally called it quits.
While OCTG pricing has been mostly dismal this year the bleeding stanched some this month. Concerns now are on falling raw material prices that have exerted downward force on U.S. hot-rolled (HR) steel prices, which are posting YTD lows. This presents additional pressures for OCTG pricing heading into the seasonally slow fourth quarter.
The “lower for longer” oil price meme has few running with the bulls, but teaming with the bears isn’t a sure bet either. Yep, it’s official: we’ve hit a rough ‘patch.’ But here are a couple things to keep in mind. U.S. oil supply growth is stalling and oil markets are beginning a cautious recovery. The market share play by the Gulf Arab states has produced as much pain as gain and opportunities for natural gas consumption, the “wild card,” are slowly but steadily increasing. Moving forward it’s really anybody’s game. Count on us to keep our eyes on the ball!
Photo Courtesy Texas Steel Conversion