In the words of baseball legend Yogi Berra, “the future ain’t what it used to be.” As we embark on our publication’s 31st annual ‘state of the industry’ address, we find this quote to be more fitting than ever and not necessarily limited to OCTG. But OCTG is our focus here so let’s see if we can determine what the immediate future holds and its relationship to the metrics that defined the past year in OCTG.
The year-end OCTG stats in our table on page 6 of the February Report offer a bird’s-eye view of the trends that defined the OCTG landscape over the past three years. While the bulk of 2016 OCTG tonnages are less than those posted for 2015, there are two exceptions that foretell of things to come. The consumption per rig metric increased again in 2016, a nod to continued advancements in drilling technology and improvements in efficiencies. Also on display in our table are the decided gains made in market share for domestic seamless products last year. This development speaks to the opportunities that await seamless OCTG producers in the year ahead.
If we could drill down to a single word that sums up the current moment it might be “erratic.” In no particular order, we have: extreme shortages in tubing and surface casing; mills racing to ramp up production and closing in on capacity; congestion at Port Houston causing import cargo bottlenecks; a delay in the Korean OCTG tariff ruling/administrative review; an iron ore price spike; talk of another round of OCTG mill price increase announcements and speculation on what 2H17 looks like. Yes, there’s a lot to digest.
Our Inventory to Mill Sales stats of late are indicative of the vastly improved sentiment that has permeated (‘Permian-ated!’) the oil patch. In the simplest terms, the inventory to mill sales ratio metric measures the amount of inventory compared with the number of sales. The spike in this ratio seen in March and April of 2016 denotes the lowest point in OCTG consumption since mid 2009. This metric will become increasingly important in the days to come as OCTG mills scale up and imports rise to meet demand.
Herein lies the potential pitfall of sharp supply responses both domestic and imported. As the U.S. rig count rises and demand for OCTG escalates, mills across the globe are understandably eager to get things rolling. If concerns about an overextended U.S. recovery ensue and oil markets suddenly sour, that inventory build restarts the cycle seen in the U.S. OCTG Inventory to Mill Sales Ratio chart as of February 2015 when OCTG consumption began to tumble and prices started to languish. This prospect reinforces the need to keep supply chains under control until there’s more visibility into the second half of 2017.
The delicate balance that exists in the oil patch this year will surely keep us on the edge of our seats. Until the OCTG whisperer reveals what 2017 holds there’s one thing of which we can all be certain as stated by another baseball great Dan Quisenberry who said, “I’ve seen the future and it is very much like the present, only longer.”
Photo Courtesy B&L Pipeco Services