OCTG in 2020: For Whom the ‘Well’ Tolls
Hard to believe we’re moving past the dog days of summer eight months into a cycle that could be best measured in “dog years.” Oil patch austerity is keeping optimism on a short leash while myriad disruptions in global financial and commodity markets keeps the OCTG industry hanging in midair. All this begs the question: what, if anything, can be done? We’re glad you asked because this month’s outlook provides actionable insights to help subscribers navigate the remaining months of a year that is anything but normal. Our 2020 OCTG price forecast has been updated along with our latest forecasts for the rig count and OCTG apparent consumption. These are available exclusively for subscribers of our monthly market intelligence.
Last month in our exclusive 2Q20 Inventory Report the outcome of our most recent OCTG Inventory Yard Survey revealed a moderate increase in L48 inventories keeping them at historically low levels. Quarterly months of supply at the end of Q1 was still healthy. Now that we’ve input all June data points, quarterly months of supply for Q2 has doubled.
We’ve heard reports recently that other organizations are suggesting high inventories and corresponding months of supply for Q2 are to blame for the decrease witnessed in OCTG prices YTD/June. We disagree and view the declines in pricing as a direct result of the sharp drop in demand starting in Q2. At the end of Q1 prices were flat with January. Spot prices didn’t start to tumble until April following the oil price war and Covid-19 threat. And now, of course, tubular suppliers of every type are battling each other over a shrinking market and a smaller piece of the pie. This struggle will likely intensify until demand returns.
Citing high inventories as a reason for slumping prices seems like a reasonable explanation unless it’s not and as the results of our inventory survey revealed there simply isn’t a valid argument there. Having an accurate handle on OCTG inventory levels not only provides insight into product tightness and surpluses it also helps determine who the market favors: is it buyers or sellers? Knowing this is an indispensable tool for timing and negotiating buys. Based on our analysis, both quantitative (data driven) and qualitative (market observations), we discuss how the current state of play could play out in the coming quarters in our August Report.
Bottom line: keeping one's ear to the ground and “planning ahead” is the key to getting ahead in 2021—a year in which we can all hope hindsight won’t be ‘2020.’
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Photo Courtesy U.S. Steel Tubular Products