Optimism builds in US OCTG, line pipe markets

Despite an ongoing price correction in the larger steel hot-rolled coil market in the United States, optimism is building in the oil country tubular goods (OCTG) and line pipe sectors, sources told Fastmarkets

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“Inventories have been drawn down low and [are] not going up as everyone is waiting for lower prices to build stocks,” Fastmarkets’ analyst Kim Leppold said. “Meanwhile, the demand is increasing. Growing demand plus low inventories means prices are supported for the time being. We could see some price contraction as a result of falling steel costs, but so far the tube and pipe guys are having a better 2022 than 2021.”

Market sources admitted they’re optimistic, but it’s the kind of cautious optimism that comes with years of experience in the up-and-down, volatile energy industry and the usual uncertainty of oil and gas pricing and production.

“I think everyone is going to enjoy the ride while we can, but no one’s taking it for granted, and it’s certainly not yet at the activity levels we saw in the recovery years of 2017, 2018 and early 2019,” a producer source in the eastern US said. “Commodity prices and upcoming summer demand certainly seem to be helping keep things up. As long as demand stays strong, which all indications seem to be that it will, there doesn’t seem to be a lot of reason for producers or distributors to let up on pricing.”

A northern US producer source agreed with the upbeat sentiment, but hedged his accolades with a dose of Murphy’s Law realism.

“I would say we are excited but cautious about 2022,” he said. “We’re a bit superstitious because it seems every time we think the year will be good, something bad happens. I guess like everyone else, we are waiting for the pricing environment to soften.

Thankfully, we don’t see it yet.”

Pricing for OCTG goods in February either increased slightly or was steady, with the drill rig count continuing to climb and oil prices at levels not seen since 2014.

Since hitting a Covid-19 pandemic low of 244 rigs in the week of August 14, 2020, the US rig count more than doubled to 613 last week - its highest level since reaching 664 rigs during the week ended April 3, 2020.

Fastmarkets’ assessment for steel seamless OCTG API 5CT – Casing P110, fob mill US was $2,350-2,450 per short ton on Tuesday February 8, up by 4.35% from $2,250-2,350 per ton in January. The current midpoint of $2,400 per ton marks the highest level since April 2009, when the price was at $2,425 per ton.

The assessment for steel welded OCTG API 5CT – Casing P110, fob mill US was at $2,300-2,400 per ton, up by 4.44% from $2,200-2,300 per ton in the same comparison.

Another positive market is Tenaris US’ announcement on February 8 that it will reactivate its heat-treatment and finishing lines at its Koppel, Pennsylvania, meltshop in April, sources said.

“Tenaris continuing to ramp up like that is definitely a sign that OCTG activity continues to be on the upswing,” the eastern US producer source said.

Fastmarkets’ assessment for steel OCTG API 5CT, Casing J55, fob mill US was at $2,250-$2,350 per ton on Tuesday, unchanged from January but still its highest level since reaching $2,385 per ton in December 2008.

In the line pipe market, there was some contraction in electric-resistance welded (ERW) pricing, but nowhere near the drops seen in the hot-rolled coil market.

Fastmarkets’ daily steel hot-rolled coil index, fob mill US was calculated at $58.67 per hundredweight ($1,173.40 per ton) on Tuesday, down slightly from $59 per cwt on February 7 and by 4.86% from $61.67 per cwt one week earlier.

Fastmarkets’ assessment for steel ERW line pipe (X52), fob mill US was at $2,375-2,425 per ton on Tuesday, down by 2.04% month on month from $2,425-2,475 per ton despite the steeper declines in HRC pricing over the same timeframe.

“We are seeing a very healthy market with a small amount of deflation on the pipe but nothing compared to what is happening on coil,” a distributor source said. “We’re still very busy and the deflation in coil is actually boosting our business as so many distributors are on the sidelines again – very similar to what happened last year at this time. It is for the opposite reasons this time, however, nobody wants to buy inventory as pricing declines, and is causing serious shortages in some sizes because of it.”

The producer source in the eastern US agreed.

“ERW availability seems to be improving a little, but many lead times are still out 30-60 days depending on product,” he said. “Seamless lead times are most likely well over 90 days.”

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