4Q20 OCTG Inventory Survey: Diagnosing What Condition Our Condition Is In
With a year that felt more like a decade behind us, we welcome 2021 and hope it will be happier and healthier for all. Understandably, many entered the new year with cabin fever but fortunately it’s not virulent and can be treated. One of the few things we’re pleased to spread from last year is the news of a significant liquidation in inventories of OCTG in the final quarter of the year. That, along with an injection of present-moment market optimism, should bring even greater relief to the oil patch.
We kick off our 35th year in publishing with the announcement that our exclusive OCTG yard survey of the US supply chain revealed that inventories of “prime” finished upstream OCTG in the L48 closed 4Q20 at its lowest level since 3Q08. This distinction was shared with the inventory total in the “tri-state” (TX, LA, OK): three states with the heaviest concentration of tubular goods. Stocks outside the tri-state were also pared materially.
Drops were reported in every product category throughout the tri-state in Q4. Of special note is the closely monitored tubing category (SMLS & ERW), where a healthy contraction was recorded this past quarter. The recent withdrawal brought volumes of tubing to lows not seen since Q3 of 2004—16 years ago.
Armed with our exclusive inventory data points we did a deep dive in our January Report into what drove them. Stats are often distorted in downturns and the most recent down-cycle was unprecedented. Our annual “active” versus stalled and/or obsolete OCTG inventory survey was a big help in dissecting inventories, shedding light and providing color on the past quarter’s pronounced drawdown. To summarize, inventories of obsolete OCTG (tons being scrapped or repurposed) rose significantly Y/Y and contributed to the influx of tons flushed from the supply chain.
Our January Report goes into detail about the change-up Y/Y and what it means for our subscribers. Suffice to say, this explains the tighter OCTG inventories we’re now seeing converge with higher raw material costs leading to upward pressure on prices from both welded and seamless OCTG producers. This, of course, means higher prices across the board for end users just as the market shakes off a long winter’s nap: aka the last nine months of 2020.
There’s no denying last year was a bitter pill to swallow but looking back isn’t the way forward. While 2021 won’t be a cure-all for what ails the oil patch, there’s a good chance it will be a shot in the arm in comparison.
NOTE: Our monthly blog posts offer a slice of the content we publish in The OCTG Situation Report® every month. To subscribe and/or request a complimentary copy of our Report for review please visit: https://www.octgsituationreport.com/subscribe
Photo Courtesy JD Rush Corporation