[et_pb_section fb_built=”1″ _builder_version=”3.22.3″][et_pb_row _builder_version=”3.22.7″][et_pb_column type=”4_4″ _builder_version=”3.21.1″][et_pb_text _builder_version=”3.22.7″ text_font=”|600|||||||” text_text_color=”#d31a1a” text_font_size=”28px” header_font=”|600|||||||” header_text_color=”#d31a1a”]
It’s a couple of things
[/et_pb_text][et_pb_text _builder_version=”3.22.7″ text_font=”||||||||” text_font_size=”22px” text_line_height=”1.6em” header_font=”||||||||”]
Podcast Blurb:
OCTG Casing Prices going crazy and fundamentals don’t seem to make sense any more? Jake explains the big and small picture of what’s going on behind the scenes.
History:
Supply – Historical 2014/15 inventory overhang. New production slowed, pricing took a hit. A lot of OCTG people were hurt badly. Instead of going to therapy, some of us started podcasts. Supply geared up in 2018/2019 under trump, without supply strain constraints supply kept up with 1000+ rigs. When COVID happened, OCTG production fell off a cliff. OCTG pricing bottomed out on election night 2020, and HRC pricing also bottomed around the same time. Since that moment, both commodities skyrocketd in pricing. This actually hurt supply really bad – will elaborate later.
Demand – easy story to tell, bc I know most our listeners follow oil. 14/15 crash, rigs ramp up to 1000 under trump in 18/19, then covid hits and demand fell to 0 -~200 rigs running. Already high inventories made situation very bleak. No one bought pipe, mills did not increase production.
Important to note throughout this time, we never really ramped up OCTG production since the 14/15 hit. Heres why!
OCTG Supply Chain motivations for buying pipe 2014 to now:
– OCTG production flatlined after the 14/15 crash, recovered during Trump’s 18/19 recovery but never outpaced demand – rigs skyrocketed above 1000 during this time. Then covid hit, and we were back to square 1. The real question is – why haven’t we recovered supply since OCTG pricing began to skyrocket after “Biden’s election:” When operators asked me to look in my crystal ball during this time, I would say pricing is going up, supply is tightenting ,and we don’t see any relieve in the near or mid term future. Well that sounds like a great time to buy inventory! but Id always laugh bc we weren’t.
o Dealers don’t want to buy speculative inventory in a market with ATH prices. More on this later
o Almost all new mill orders are being made hand-to-mouth
o HRC prices have been higher than finished J55 ERW prices. This took a lot of USA ERW mills out of the market
o Labor issues
o Potential south Korea tariff – would love to have an educated guest on in this space
o Less available capital – we are all licking our wounds from the ’14 downturn – which is effecting our spending decisions. I don’t see a lot of new money coming into OCTG.
o Less productive capital – you need ~2X the capital to move the same amount of tons. Being used to supply existing orders
o Even tho now margins improved quickly after 2020 election, people in pipe supply chains are not building inventory with our profits. We are paying down debt, hoarding cash, spending capex improvements we should have done in the past few years, dealing with inflation and everything being more expensive.
o Freight costs- overseas freight costs went up ~5X during this time depending who you asked, and long lead times.
o Have rigs been getting more efficient? Great question
Looking forward:
Baseline – supply and pricing improves in 4-8 months
Imports:
– I get a new intl mill in my inbox everyday
– Imports Nov – January up +50% above 12mo moving average
Domestic
– Labor issues persist.
– HRC prices are dropping to allow US ERW mills back into the fray, but will they?
– We expect to see HRC pricing decouple from OCTG for a while
Demand
– DUCs
– Oil price – goes above 100 all bets are off, depending what it does to rigs
[/et_pb_text][/et_pb_column][/et_pb_row][et_pb_row _builder_version=”3.22.3″][et_pb_column type=”4_4″ _builder_version=”3.21.1″][et_pb_cta title=”Don’t Forget to Subscribe” button_url=”https://podcasts.apple.com/us/podcast/pipe-brothers-podcast/id1460030056?ct=podnews_podcast&ign-mpt=uo%3D4″ button_text=”Subscribe on ITunes” _builder_version=”3.22.1″ header_font=”||||||||” header_font_size=”31px” background_color=”#d31a1a” custom_button=”on” button_text_color=”#000000″ button_bg_color=”#ffffff” button_border_color=”#ffffff” button_font=”||||||||” button_icon=”%%57%%”][/et_pb_cta][/et_pb_column][/et_pb_row][/et_pb_section]
Podcast: Play in new window | Download