RESEARCH: Costs uphold prices for seamless energy tubulars, despite weak demand

US ERW OCTG edges higher, seamless could follow

• Rising substrate costs helped support US ERW OCTG prices this month, especially at the upper end of the range of offers. 
• Seamless OCTG and linepipe prices, meanwhile, held firm compared with September prices. The fundamentals remain weak, with rig counts going up only modestly, and capacity utilization remaining low.
• The risk of prices being pushed lower by inventory liquidation in the fourth quarter remains, but if prices for new rolling stay firm, available tonnages may not be sold as low as previously expected.

Middle East linepipe offers on the rise

• Chinese linepipe suppliers have taken steps to pass on higher costs to purchasers in the Middle Eastern market.
• While we expect the recovery in prices to continue and for OCTG prices to eventually catch up with rising costs, any growth will be modest through the fourth quarter amid weak demand and project delays.

North Sea demand remains weak

• Demand for OCTG and linepipe has remained weak in the North Sea despite a number of projects heading toward a final investment decision following Norway’s tax breaks.
• Inventories are high and the UK market shows little sign of a rebound.

Chinese confidence remains low

• Chinese suppliers expect demand to deteriorate this quarter and we expect mills to take steps to run down their inventories, which could result in some fire-sales.

Japanese commodity-grade OCTG finds price

• Offers for Japanese J/K 55 fob are now converging at around $1,050/tonne after they had been all over the place in recent months amid a lack of spot demand. We believe this should not be read as a price jump from our previous assessment of $950/tonne given the wide range of prices seen in recent months.

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