May’s OCTG Snooze Turns to Breaking News
What began as a month of snooze abruptly filled with breaking news. So we decided to investigate some of the headlines of the day in our May Report. On Friday, May 17 there was the announcement of an “apparent” settlement in the steel tariff portion of the new NAFTA (the USMCA). The day before, on May 16, we learned that tariffs on Turkish steel were being halved. And then, on May 20, just as we were going to press came the news of the final antidumping (AD) decision for the third period of review (ARP3) on OCTG imports from South Korea necessitating some 11th hour alterations in our editorial. But before we bury the lead, the subject du jour of late seems to be tubing.
Actually, the tubing situation plays right into Korean imports for 2019 so we tackled this twofold issue first. We’ve covered this subject in almost every Report since the quotas (sans tariff) were announced for South Korea in late March 2018. Originally we predicted a tightening in tubing supplies toward the end of 2018. That didn’t materialize in part due to E&P budget exhaustion in late Q3 converging with a crude price inflection that surprised to the downside in October and dragged on through the end of December. There was also the significant influx of imported tubing in 1H18 that was slow to be consumed on account of a buildup of DUCs; the bulk of which were stacking up in the Permian. Turns out tubing shipments as a whole were only down by small percent Y/Y in 2018 despite the 232, with better than half of all imported tubing shipments received in the first part of the year alone. Our expectation going into the final ARP3 determination this month was that this would not be the case for 2019 as US tubing supply was certain to suffer the consequences of being severely crimped. Our pre-ARP3 judgement was well supported and detailed in our current Report.
This new development brings tubing supply for 2H19 into question and may blunt our argument about the potential for shortages. Our fact check revealed, the volume of tubing received thus far into the year from South Korea was shipped to get ahead of the imminent ARP3 duties. It was also noted that no other country had taken up the tubing gauntlet as of 1Q19. Now with the newly determined, less severe, AD margins Korean supply could drop off this year but to a far lesser degree than anticipated. Of course, whether tubing consumption is due for a hike in 2H19 is based around the expectation that crude pricing doesn’t implode and activity remains steady. Hard to state now if this news will dampen the tubing pricing recovery. Bottom line: pricing is a function of supply and demand and now we must also entertain the possibility of added tubing supply before new domestic sources of supply come on stream in 2020. We consider this angle in depth this month. In any case, we’d be remiss not to recommend readers keep their ears to the ground and eyes on our monthly intel for updates.
Continuing with the breaking news is the announcement by the administration eliminating the 25% steel tariffs (effective within 48 hours of the announcement) that were originally imposed on Canada and Mexico shortly after the 232 was announced. The takeaway: a split between those who view this as mostly a non-event for supply in 2019 and those who see escalating imports as inevitable. Others don’t believe this will be the last we hear on the subject and that some type of volume restraint is still likely to be instituted. The real spoiler is the notion that anyone who imports green tubes, pipe, coil or billets from anywhere other than Mexico and Canada will be at a disadvantage.
And lastly, we reported the White House reduced existing 50% punitive tariffs on Turkish steel imports (imposed in August of 2018) to 25%. At this juncture, we don’t see much cause for concern on this development.
And that, readers, is all the news that’s fit to print for now. You may return to your regularly scheduled programs and we’ll meet up again next month when we assess the mid-year market sentiment throughout the OCTG supply chain during our annual June oil patch confabs.
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Photo Noble Energy inc. Courtesy © Jim Blecha: oilandgasphotographers.com
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