“Unconventional” & “Unpredictable”: What Politics and the Oil Patch Have in Common.

Tubes manufacturing plant - Youngstown - Ohio - USA

Photo Courtesy Vallourec Star, Youngstown, OH

 

Susan Murphy | Publisher of The OCTG Situation Report

Susan Murphy | Publisher

Who would have thought the raucous presidential campaign we’re witnessing in the U.S. would be as “unconventional” and “unpredictable” as the oil patch these days? On that note, we’ve decided to give political headlines a run for their money and “spill the beans” on our non-partisan 1Q16 inventory survey. Our mandate every quarter is to assess the health of our industry by measuring demand for OCTG. The scope of this endeavor includes canvassing inventory data from truck terminals, mills, processors and inspection yards throughout the lower 48. Our tally for the first quarter of 2016 revealed that inventories ceded some ground Q/Q but it wasn’t anywhere near the landslide needed to balance the market and restore confidence for the majority.

Our exclusive survey affirmed that “prime” U.S. OCTG inventories contracted 5% in the most recent quarter. Tonnage declines throughout the tri-state region were seen in all but one product segment.

The narrative uncovered by our first quarter survey is that the pace of the inventory destocking has decelerated to a degree sufficient to dampen hopes of a rapid recovery for months of supply this year. This is due in large part to a combination of anemic demand, a backflow of material from end users and months where OCTG imports were more than the market could absorb. There has also been some restocking from deep-pocketed distributors who are able to plug holes in their inventories at historically low prices.

The recent rally in raw materials (HRC/scrap) and extended lead times on flat rolled products may pave the way for a price increase in the near to medium term but won’t do much to improve margins for most. For now only a couple mills have responded by announcing formal price hikes on spot orders of various products. Meanwhile, oil prices still have us over a barrel (pardon the pun-dit!) and OCTG spot prices show no sign of firming this month as confirmed by the largest dollar/ton drop this year. We predict it will be a couple months before pricing finds a bottom.

Fortunately March license data suggests that OCTG imports have retreated ~52% M/M, which is an immense relief given the dearth of demand coupled with an ~18% jump in imports (conservatively speaking) in the first quarter. Talk of a “Section 201” action for various steel product categories is heating up as the domestic steel industry considers potential safeguards to bring greater relief to the unremitting import situation than what the feeble AD and CVD trade cases have heretofore rendered. If sought, the onus will be on mills to prove a higher standard of injury under Section 201 than in traditional AD and CVD cases.

After a punishing 2015 followed by a divisive election for the leader of the free world that’s shaping up to be the most surreal political spectacle in modern history we believe we could all use a little comic relief. For that we look to none other than American author and humorist Mark Twain who declared, “Politicians and diapers must be changed often and for the same reason.” Enough said.

 

About The OCTG Situation Report

Susan Murphy is the publisher of The OCTG Situation Report, a leading authority focused on the North American Oil Country Tubular Goods market. Susan has worked alongside the founder of The OCTG Situation Report, Duane Murphy (and yes, there is a family connection!) for the past decade assisting in various aspects of producing the monthly publication and special projects including market research and development. It had long been suspected that Susan carried the 'OCTGene,' a fact that was confirmed when she took the reins in 2012. A native of Michigan and now practicing cowgirl, Susan employs her education from both the University of Michigan and Michigan State University bringing her expertise in the areas of research, marketing, branding and creative and technical writing to The Report. She has also enjoyed a successful business career as a lauded entrepreneur, running her own brand/marketing and advertising/design firms.
This entry was posted in 2016 E&P Budgets, 2016 Presidential Election, Crude Oil Prices, DUCs, E&P, E&P spending, Energy, ERW Pipe, First Quarter, Inventory, OCTG, OCTG Spot Prices, Section 201 and tagged , , , , , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s