Will OCTG Prove Its ‘Metal’ in 2016?
It’s medal mania all over again as the 2016 Rio Olympic Games permeate the airwaves. And it’s “metal” mania here in the OCTG Situation Room as we dig into the various drivers that impact oil country tubular goods. The buzz of recent seems centered on the hot rolled coil (HRC) trade case outcome. While we share details of the results in our August market intel we offer highlights that relate specifically to OCTG here.
We reported there was a pickup in inquiries in early June and there are some E&Ps who have recently revised their E&P budgets modestly upward for the balance of the year (mainly Permian basin drillers). If there isn’t another surprise dive in crude prices, any recovery in drilling activity should help support OCTG pricing and cover the very real increased costs of coil (up ~64% after bottoming in late 2015) with which domestic welded OCTG producers have been wrestling. At the moment U.S. HRC spot prices are trending slightly lower (~$600/st) and there is insufficient OCTG demand to push coil pricing upward in the immediate term. Likewise, there’s been no jump in HRC pricing from the recent trade case determinations. Notwithstanding the meager OCTG price increase this month, overall we see OCTG prices continuing rather choppy and increasing only marginally through the year end barring any unforeseen hiccups. But before we get ahead of ourselves, we need to look at escalating OCTG imports that threaten any chance of a sustained recovery and ask is the OCTGenie out of the bottle? License data for July is pointing to an increase of ~30% M/M for July OCTG imports bringing import volumes in the range of 96K tons for the month. Simply put, until commodity prices stabilize surplus supply from any source is unwarranted. If shipments remain elevated in the coming months without a corresponding steady uptick in demand expect to see tubular inventories reverse course and prices struggle to maintain current levels. No matter how you slice it, we still have a ways to go to overcome the many hurdles raised by the OILigarchy (OPEC’s) run for marketshare. Right now no country is winning the oil price war leaving us to channel our inner Olympians who would remind us, “the harder the battle, the sweeter the victory.”
Photo Courtesy Murphy Oil Corporation