Tubular-Goods-Pricing-In-A-Downturn

Some Thoughts On Tubular Goods Pricing In A Downturn

At times, the supply of oil country tubular goods to the firms operating in oil country moves in a somewhat counter-intuitive way, compared to what one might normally suppose. Everyone realizes that supply will be tight, deliveries sometimes delayed, and prices high when things are going great. This is often a good kind of problem to have; one where your only worry is how to keep feeding the roughnecks shouting for more and more pipe, and depositing the money in the bank.

As things begin to slow down a bit, however, the supply and demand dynamic changes, and not always in ways that one might expect. For example, at the dead bottom of a demand cycle, it would be easy to suppose that tubular goods are at rock bottom prices, and suppliers will be falling all over themselves to make a deal happen. Surprisingly, this is not always the case. Oilfield service firms can suffer as much as, or more than, the companies they provide goods to.

One difficulty that soon arises as things slowdown is their own credit profile gets called into question. If they are unable to get terms from their suppliers, they need to put up more of their own resources for inventory which means that they start carrying less stock on hand and may require more upfront from their customers than they normally expect. With more companies reducing inventory or going bust completely, the supply of available pipe drops very low, even in comparison to shrinking demand.

Not at first, of course. For a while, oil country tubular goods (OCTG) suppliers are up to their eyeballs in steel. They can’t give it away, although they try their best. But supplies gradually fall as they find buyers or scrap out old stock in order to keep cash flow going. No new inventory gets added. Eventually, through this process, the supply and demand equation begins to tilt in the other direction. With so much pipe being expended and none being restocked, inventories fall to the point where the supply drops below even the very modest demand remaining, and prices begin to rise back up again as suppliers find themselves sitting on high-demand items with few competitors who can get pipe to the drill rigs right away rather than in a couple of weeks from now.

Companies, like Essentra Pipe Protection Technologies, that can deliver OCTG supplies right away, have a significant advantage where growing demand is concerned. They are able to offer great pricing when things start to slowly pick up. Indeed, this superior bargaining position may also enable them to stave off their own financial setbacks, along with continuing to provide high quality products and services. Moreover, they are good at keeping the symbiotic nature of the relationship between driller and supplier in mind. On the other hand, an oil country tubular goods purveyor who gets a little too aggressive in their pricing when their customers have no place else to turn, could quickly lose customers as soon as good business suppliers come along. People survive in the oil business by having long-lasting and good business relationships.

Essentra Pipe Protection Technologies will always be here to supply the best products in oil country tubular goods. Even during economic downturns, when rig counts continue to decline, we have learned to ride the waves and hold on to meet your needs.

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