Moodys Investors Service Inc. expects a pickup in oil
country tubular goods (OCTG) and line pipe prices to stabilize
energy distributors fortunes next year.
The New York ratings
agency sees positives from a recently filed trade case against
OCTG from nine countries after prices have come under "severe"
pressure due to reduced drilling and elevated imports since
"We expect a positive
outcome for the U.S. OCTG industry since imports have increased
significantly, weighed heavily on prices and account for about
half of U.S. OCTG consumption; and about half of those imports
come from the nine countries identified in this trade case,"
However, "the benefit
will not last long unless demand for OCTG picks up
significantly over the next few years," it added.
The ratings agency
pegged OCTG consumption at about 7 million tons for 2013, and
expects the 3 million tons of planned capacity additions by
2017 to weigh on pricing in the longer term.
The line pipe market
has faced similar competitive pressures over the past few
years, although improved demand should also lead to better
pricing in 2014.
"Although we do not
see a significant catalyst to raise line pipe prices in 2014,
increased midstream infrastructure spending should help
increase demand and stabilize prices," Moodys analysts
In terms of specific
companies, the ratings agency gave a stable outlook for next
year to energy tubular distributors Edgen Group Inc., Baton
Rouge, La.; and McJunkin Red Man Corp., a division of MRC
Global Inc., Houston.
The agency estimates
that Edgen garners around 50 percent of its revenue from OCTG
sales, while that figure is 8 percent for MRC.
Line pipe business for
Edgen is estimated at 15 percent of sales. MRCs line pipe
business accounts for about 20 percent, with about 70 percent
of MRCs sales coming from valves, fittings and flanges,
according to the report.