“Houston, we have a problem here.” That ominous quote from the crew of the Apollo 13 moon flight seems to best sum up a year that put all things OCTG through the mill. And thus we commence our 30th annual ‘state of the industry’ address. While our probe into the metrics that defined the year in OCTG has often yielded valuable clues for the current year, unfortunately our review this month doesn’t offer much in the way of encouragement.
Unless you’ve been living under a rock you know within a short space of time the oil patch has all but cratered. The stats we published in this month’s market intel tell the story in no uncertain terms. Industry data on AISI (American Iron & Steel Institute) OCTG shipments, imports and exports lag behind our Report by two months so we’re now able to close the books on 2015 (whew!) and present comparisons with the two previous years making us nostalgic for the “good ol’ days.”
As shown in the chart below, the Inventory to Mill Sales Ratio has escalated to its highest level in six years confirming what we already know: that demand has deteriorated severely since February of 2015 and the rise in inventories has vastly eclipsed sales. In similar fashion, U.S. OCTG Shipments parallel the sharp downturn in manufacturing through most of last year, further punctuating the headwinds the industry has been facing of late.
The free fall in global oil prices lowered the boom on OCTG pricing in 2015 but this month saw a somewhat softer landing with a drop in price of $26 per ton M/M versus the average monthly decrease per ton last year of $44. As the prevailing composite price per ton closes in on a value we haven’t seen since early 2004 one wonders if distributor resale pricing could dip below the psychological threshold of $1,000/ton before it heads back up? If, as has been suggested, oil prices remain stagnant until 3Q16 this could be the scenario come fall however it would be short lived if the Darwinian “drill or die” mentality kicks in for operators about that time.
Though it may appear our black gold has created a black hole and turning the situation around might seem a mission impossible, we should derive strength from the Apollo 13 outcome. Even in the face of insurmountable odds, failure was not an option.