Normalization and Strength in OCTG Market

Includes: MT, NUE, X
by: Michelle Galanter Applebaum

OCTG Prices Nominally Increase. According to data released by Pipe Logix, the “average market basket” of OCTG [Oil Country Tubular Goods] prices moved up slightly in December to $1,565/ton, a nominal 0.4% increase from November but breaking a 14-month steady decline. Prices are still a whopping 51.4% below the all-time high of $3,220/ton recorded in September 2008. Some 60% of the OCTG products tracked recorded price increases this month, triple the level in November. We believe a combination of rising substrate prices – sheet and plate - and falling inventory levels have finally yielded some pricing support.

Global Imports Remain Strong. Preliminary OCTG imports in the U.S. in November came in at to 42,482 tons and have risen some 130% from the low in August as other regions step in and fill the void left by the retreat of Chinese pipe imports after the trade case filed in April. Today, the U.S. International Trade Commission announced its final determination on the countervailing (anti-subsidy) duty investigation on Chinese OCTG, affirming the average duty of 10% - 16% imposed by the Department of Commerce. We expect the success of the trade cases to continue to depress the pipe imports from China.

Outlook. We believe OCTG prices have seen the bottom and could rise further in Q1 2010 due to improved demand from seasonal drilling strength, rising domestic rig count, higher flat-rolled prices, and higher energy prices. We also expect pricing support from domestic inventories, which are starting to revert to normal levels. Pipe & tubing service center inventories have steadily fallen for the past 9 months, with November inventories 30% below the February peak.

Disclosure: NA