Steel prices fall modestly while demand for OCTG stays strong - Rystad Energy’s weekly steel and OCTG market note

Steel prices fall modestly while demand for OCTG stays strong amid limited supply for some types.

Steel

There was another modest fall in average steel spot prices last week with the European decline again proving the more significant of our regional benchmarks, at least in US dollar terms.

The daily average hot-rolled coil (HRC) base price benchmark for the region slipped 2% or approximately $10 per metric ton to $680.50 per ton ex-works.

Signs of a modest recovery in the € per US$ exchange rate have added pressure on European producers that are trying to raise prices locally but they are starting to succeed, as we have been predicting. On Friday, October 28^th, for example, the HRC price in its traded currency had risen by €12 per ton week on week to €680 per ton; further gains remain likely in our opinion as buyers return to the market.

Certainly, the gap between EU and Chinese export prices continues to narrow, down to just $133 per ton last week from a 2022 average so far of $309 per ton and US domestic price premiums continue to rise, now up to $156 per ton over EU prices though still below the $192 per ton average in the year to date. Upside risks to US prices remain more limited than in Europe, however, given that raw material and energy costs are falling, boosting the real-time margins of local US producers.

Unless the costs of producing steel in Europe fall in parallel, steel prices here are bound to recovery further.

OCTG

OCTG demand in the US market remains strong as drilling rates have been fairly steady over the past couple of months.

We expect to see the rig count to remain the same, or rise slightly during the fourth quarter, keeping OCTG demand solid into next year.

Falling prices for hot-rolled coil in the US have had limited impact on ERW OCTG pricing in the market.

Demand for ERW OCTG casing in the US is steady and strong, and supply is improving but still lagging.

Some domestic mills have already closed their order books for ERW OCTG for the first quarter of 2023, while others may still have some available capacity.

ERW OCTG prices, especially for alloy grades, are expected to stay on the strong trend, supported by healthy demand and robust supply.

ERW OCTG tubing is in very short supply, while processing tubing remains a big problem in the US as the processors in Houston are currently maxed out.

We are beginning to see some additional seamless OCTG supply in the market, but inventories are still low especially for heat treat/alloy items.

Seamless OCTG demand is expected to remain at current levels as US drilling will likely stay steady in 2023.

Most US mills have not begun pricing January/1Q23 yet, but we would expect pricing to stay at the current levels or move up slightly.