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Moody’s expects improved OCTG, line pipe tags in ’14

Keywords: Tags  Moody's Investors Service, oil country tubular goods, OCTG, trade case, line pipe, Edgen Group, MRC Global, McJunkin Red Man 2014 price outlook

NEW YORK — Moody’s 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 2012.

"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," Moody’s wrote.

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," Moody’s analysts wrote.

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. MRC’s line pipe business accounts for about 20 percent, with about 70 percent of MRC’s sales coming from valves, fittings and flanges, according to the report.

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