US market at risk of sliding
Prices for pipe products were at a floor in the United States in mid-August, and have been broadly stable at that level since the start of the second quarter, but they are at risk of declining further in the coming months.
Drilling rig counts have yet to find a floor and have fallen below most estimates of the bottom threshold in terms of activity. And even when oil demand recovers, drilled but uncompleted wells will be first to come into service, extending the time until there is a rebound in demand for oil-country tubular goods (OCTG).
With demand in a trough and inventories built-up, there will be pressure in the market to generate cash and reduce stocks. So there is the risk that prices for tonnages on the ground will fall lower than the cost of new-rolling material.
Middle East activity slumps
Middle East activity reached a bottom in August because of holidays, Covid-19-related lockdowns and project delays. But national oil companies (NOCs) were determined to be ready for a rebound in oil and gas demand, and we expect that most projects that have been postponed will materialize next year and support prices at that time.
Japan’s quality premium continues to fade
Japan’s export prices have continued to fall over the past month, except for commodity-grade OCTG. Margins are still being cut and global demand is not sufficient to absorb production.
Chinese seaborne market under pressure
With global seamless pipe demand yet to rebound, we also expect that the Chinese seamless pipe export market will remain weak in the near term. We understand that China’s huge infrastructure plans would mostly require welded pipes, giving little support for domestic producers of seamless pipe products.
On the other hand, the infrastructure plans were supporting raw materials prices, putting a limit on pipe price declines. In order to stave off high costs, some Chinese mills have already turned to buying cheap semi-finished steel products instead of using raw materials.
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