TORONTO Oil country
tubular goods (OCTG) prices have further room to fall before
finding a bottom, traders and distributors said as one industry
indicator showed a third consecutive monthly drop.
The traders and distributors
pointed to a host of concerns, including domestic
overproduction, imports, falling energy prices, political
uncertainty in the United States and economic worries about
Europe, China and other big emerging markets.
"Other than that, everything is
just fine," one distributor said.
Average spot OCTG prices fell to
$1,875 per ton for June, down 0.6 percent from $1,887 per ton
in May, according to data from Tulsa, Okla.-based Pipe Logix
Inc. Average spot welded OCTG tags stood at $1,731 per ton,
down 0.5 percent, while average spot seamless OCTG prices
slipped 0.7 percent to $2,019 per ton from $2,034 per ton in
the same comparison.
That downward trend was
confirmed by almost all market sources who spoke with
"Activity has been strong at a
lot of these (OCTG) mills," a second distributor source said.
"But I think there is a little too much inventory being
produced than necessary to accommodate demand."
Thats been especially so
in recent weeks, as energy pricesparticularly oil
tagshave taken a big hit, the second distributor said.
With oil prices in the $70-per-barrel range a possibility,
end-users who had become accustomed to oil prices of $90 to
$100 per barrel or beyond are now examining their drilling
programs more closely, with some scaling back planned activity,
"Some people are taking a harder
look at the bottom line and not doing things that arent
absolutely necessary," the second distributor said. "Those that
have been in this business a long time understand its
volatility ... and if you dont observe that (volatility)
with some caution, you can get yourself in a lot of
OCTG hasnt shown any major
price deterioration to date, but the market has faced more
of a change in market psychology, the second distributor and
other market sources said. But prices could be affected if
demand falters and OCTG availability rises significantly, they
Some end-users have made
commitments to take a certain amount of pipe from mills, the
second distributor said, noting that if they have since dialed
back their drilling programs they wont be consuming that
material as quickly as expected and will delay further
Other markets sources expressed
fears about OCTG slated for drilling programs finding its way
to the spot market as end-users look to offload any material no
While carbon grades of welded
OCTG have been easy to find in the market for months, seamless
alloy materiallike 4.5- to 5.5-inch diameter
high-collapse P110, popular in shale playsis also "highly
available," the second distributor said. "I dont see
prices deteriorating to unreasonably low levels. But mills are
having to come off (higher prices)," he said.
One trader agreed. "There is too
much production; markets are soft and prices are coming down,"
he said. "The question is: How long will it last?"
A turnaround in OCTG tags might
not come before year-end, or even as far out as 2016, the
"The seamless market is way
oversupplied and will continue to be oversupplied," he said,
also blaming some offshore mills for ramping up shipments to
the United States even though the market has slowed since the
start of the year. "They are setting themselves up to get
whacked" by a trade petition.
But the second distributor
disagreed, arguing that a surge of new domestic mill capacity
is more to blame for the current supply glut than imports.