The Third Quarter OCTG Playbook
We’ve come to the end of the third quarter; time to tackle another exclusive OCTG Inventory Yard Survey. The goal of our survey is determining the health of the upstream market by measuring demand for OCTG. Our findings enable subscribers to better track and respond to supply direction trends. This exhaustive effort involves a roster of team players as we collect and analyze inventory data from truck terminals, mills, processors and inspection yards throughout the entire US supply chain.
The takeaway: sluggish increases in mill capacity and a limited but steadily increasing supply of imported goods kept inventories in check for another quarter. In Q3, as in Q2, more inventories were shed than built, further contributing to ongoing market tightness. Inventory draws were reported in every product category throughout the tri-state in Q3 except for seamless materials. Not surprisingly, ERW stocks saw the greatest retrenchment Q/Q. In the closely monitored tubing category (SMLS & ERW), another healthy reduction was registered this past quarter. Comprehensive details and critical data points can be found in this month’s OCTG Situation Report.
Now let’s look at the results in view of the rest of the market. At present, commodity prices have us running with the ‘bulls’: Nat Gas futures settled at their highest level ($6.31/MMBtu) since December 2008 on October 5 and WTI crude closed above $80/BBL for the first time in nearly 7 years on October 11. This is remarkable considering where both landed last year and bodes well for improving E&P Capex and related activities. And while growth is expected more from private operators than majors, that may be a silver lining. Anything other than slow and measured improvements during this volatile post-pandemic recovery could add unnecessary fuel to the fire.
Speaking of being in the line of fire; a new trade case was filed alleging OCTG from Argentina, Mexico and Russia is being sold in the US at less than fair value. The petition also alleges South Korea and Russia are providing unfair subsidies to their producers and exporters. With the exception of Korea, these are mainly seamless exporting countries. This is a fluid situation. The main thing to know now is the date of the ITC Vote on November 22, 2021. That is when we will know if an injury determination has been decreed and what if any margins will be drafted. While we can’t deny its significance, to declare this is a game-changer is purely speculation at this point. That said, considering shrinking inventories and record high input costs, with or without this trade case, scoring pipe now will likely be a more affordable option than punting and risk being sidelined. If you’re a buyer in need of pipe the best thing to do from now until then is organize a game plan. That way fewer are left scrambling in 1H22. As with all things OCTG, you can count on us to keep our eyes on the ball moving forward.
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 Elite Tubular