When you live inside a spreadsheet for weeks at a time sometimes the impact of the stacks of stats can blur. Be that as it may, our year-end OCTG stats table in our February Report leaves no ‘pipe’ unturned when it comes to quantifying the outcome of 2020’s unprecedented crash, “the worst oil bust in a generation,” on OCTG. Yet, the present moment offers an occasion to bask in a bit of better news: which is to say oil markets have been buoyed by the rollout of the Coronavirus vaccines and Saudi Arabia is cutting production to help balance supply and demand. This doesn’t mean the industry can hit the “Easy Button,” “chillax” and expect an immediate return to pre-Covid demand but it helps to get things rolling. On that note, at the end of 2020 a much-improved outlook for 2021 was published in the Dallas Fed Energy Survey. Their “business activity index” tendered the first positive reading since 1Q19, with the increase driven by both E&P and OFS firms. And while their six-month outlook improved notably, the “uncertainty index” fell to the lowest reading since its inception in 1Q17, an auspicious signal from a typically wary group.
And so begins our 35th “Annual State of the Industry Report.” You’ll find a host of vital metrics for the past three years in our 2020 year-end OCTG stats table along with our between-the-lines read in our current market intel. For starters, apparent consumption ended the year down significantly. This key metric was only slightly better than apparent consumption in 2016, which ranked as the worst OCTG consumption stat since 2002. Equally pronounced was the elevated Y/Y consumption/rig stat, which we discuss in detail this month.
February marks the fifth consecutive month of OCTG price traction. While the current rash of pricing strength is driven in large part by raw materials, we spent the latter half of 2020 cautioning that prices would be rising as demand awoke to lowered inventories and muted imports. HRC prices are still accelerating and it seems likely this bull run will continue until heightened demand from the automotive market is met and supply is increased. Right now, that’s anticipated in the next month or two as capacity expansions are introduced but the price shocks may take longer to flatten out. Steel scrap hasn’t been left out of this scenario as scrap participants found themselves in the midst of one of the strongest markets in over a decade as the new year began. The scrap price momentum is expected to persist through early 2021, though questions remain about the longer-term outlook.
As we wrap another year in review, we can’t help but wonder what the OCTGenie will unleash in 2021. Will the effects of the pandemic go in one ‘year’ and out the next? There’s reason to believe the worst is behind us but there’s still more work to do. After all, this month begins the Lunar New Year of the Metal Ox, where the universal energy is focused on metal industries. Perhaps this is the impetus the OCTG market needs to prove its ‘metal’ in 2021.
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Photo Courtesy Vallourec USA Corporation