The checkered flag has been waved, signaling the results of our 2Q16 OCTG inventory yard survey are in. It is here where the rubber meets the road, suggesting descending inventory stocks are paving the way for improvements moving forward. As many of you know we pull out all the stops for our quarterly surveys: tracking demand for OCTG throughout the entire supply chain. To ensure the most accurate results we involve a crew of people who count pipe at truck terminals, mills, processors and inspection yards across the lower 48 every quarter.
Gauging the health of the oil patch is the intent of our industry exclusive inventory survey and the takeaway for Q2 offers some modest encouragement. Turns out the draw down this quarter was very similar to last quarter’s results, coming in just under 3K tons less overall.
Just when we thought it was safe to call a bottom, OCTG pricing remains gridlocked. Once again distributors find themselves competing against a slew of distressed stock as we’ve noted. At the same time, we’ve heard multiple reports of renewed interest from would-be buyers, a decided improvement from all the tire kicking of late. Mill inquiries are picking up for the 3rd quarter, but the acceleration in HRC costs have made it exceedingly difficult for domestic ERW producers to compete with seamless producers and imports alike.
A few potential growth engines remain on the horizon, not the least of which is the 2017 E&P spending outlook that suggests E&Ps are revving up, eager to put the pedal to the metal – if currently stalled oil prices move north of $50 again. The recent news that the U.S. is on track to export more natural gas than it imports for the first time since 1957 might also prove a kick in the ‘gas’ in the days to come.
And then there’s the fact that OCTG months of supply is beginning to shift down M/M. There’s a lot riding on this metric so it’s a welcome break from the negativity that’s fueled the OCTG sector for the past year and a half.
As we race toward the close of the year, the question remains: are we in the home stretch? Despite the pundits, there’s no GPS for times like these. Our advice: buckle up but never curb your enthusiasm for the road ahead.