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  • Susan Murphy

OCTG Q3 Inventories: “Back to the Future”

Another quarter wrapped; time to zoom in on the results of The OCTG Situation Report’s exclusive OCTG inventory yard survey. First, we want to give props to the cast and crew who work behind the scenes to make this production possible each quarter. Much credit goes to the numerous supply chain professionals

who inventory pipe at truck terminals, mills, processors and inspection yards throughout the lower 48 every three months.

Q3 could easily be titled, “Back to the Future,” as imports managed to steal the show—again. Inventories of “prime” OCTG in the US ballooned +8% for the period ending 9/30/17. We haven’t witnessed a consecutive escalation in tonnages to this degree (that wasn’t driven by a third quarter adjustment necessitated by the addition of new OCTG yards) since the second and third quarters of 2010. At that time, the market was picking up steam following the final ruling in the OCTG trade case brought against China in 2009. The storyline this quarter is much the same, only the actors have changed. In the “tri-state” (TX, OK, LA) area where stockpiles of OCTG are most concentrated, inventories escalated +9%. Processors in this cluster of states reported the greatest build Q/Q. OCTG inventories outside of the tri-state advanced a marginal +5% this quarter.

Not surprisingly, product segments driving the increase in inventory tons this quarter were welded materials and carbon grades. ERW stockpiles saw their second consecutive quarter of triple-digit increases. This is the second significant increase in ERW following eight consecutive quarters of decreases. Carbon stocks bulged in Q3 as well: here we noted a triple-digit increase that hasn’t been seen since 3Q14, which was precipitated by a steady period of high volumes of imports. Needless to say, if imports continue to ratchet up they will most definitely prove to be a spoiler when it comes to the opportunity for a full recovery for the OCTG market. Further detail along with an analysis of “active” versus stalled and/or obsolete OCTG inventory is presented in this month’s OCTG Situation Report.

Meanwhile the delay in the Section 232 trade investigation (discussed in our August Report) has only aggravated the import situation, leaving many in limbo. Imports of steel products, in general, have risen sharply since the 232 was announced suggesting that exporters are less and less concerned about the potential threat to quell shipments and simply want to unload stock while they can. Commerce Secretary Wilbur Ross has announced that the 232 report will be deferred until progress is made on tax reform but the time for decision is drawing near as Commerce must complete its investigation by January 14.

2018 US E&P spending plans have yet to be released although consensus expectations call for +10% to 15%, which offers a glimmer of hope that the market won’t fall off a cliff but plenty of challenges remain. The market for OCTG is faced with significant overcapacity issues and these won’t simply fade to black. Imports of OCTG are surging again and the 232 trade investigation mentioned above only adds to the mounting concerns. While completions activity remains resilient and producers are hedging 2018 production at +$50/bbl, the prospects for next year are not yet in focus.

Turning to coming attractions for the year’s end: our 2018 annual OCTG forecast is set for worldwide release this November. Will the coming year be a blockbuster, an outright bust, or a mixed picture? Stay tuned to next month's sequel to learn what’s in the pipeline…

Photo Courtesy John Lawrie Tubulars Inc.

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