MRC Global Volume 9 Issue 1 May 2018 InSight
MRC Global InSight

Optimistic Outlook with
Continued Recovery

MRC Global is pleased to bring you our June edition of InSight. In our October 2017 issue, we declared cautious optimism for a sustained improvement in market conditions throughout 2018. At the time of this writing, WTI had just passed $70/bbl and Brent had passed $75/bbl for the first time since November 2014. The market has indeed continued to improve in 2018. In this publication, we will talk about the implications of this continued recovery for the supply chain and will comment on regional differences around the globe.

The North American market has accelerated quickly, with increased levels of activity across all streams. The upstream market is particularly strong in the Permian region, and the US rig count is at its highest level in over 18 months. Midstream pipeline projects are abundant with our transmission customers carrying very healthy CAPEX budgets. The downstream market has also recovered with a strong turnaround season underway in 2018, increased project activity and new projects announced for both greenfield plants and existing units. In the international markets, demand has also increased, albeit later and slower than in North America. The downstream market is active in Asia and the Middle East, and significant investments continue in the Caspian region. There is finally some optimism for the offshore sector with new projects announced in the North Sea and Norwegian Continental Shelf.

Increased global demand has resulted in a tight supply chain with inflationary implications. Price increases are prevalent across all pipe, valve and fitting (PVF) product lines with commodity prices moving up sharply in the most active markets. The following pages will indicate price changes by product type, and you will also read how these increases are driven by macro factors other than raw material increases and heightened demand. Factors such as tariffs, quotas, environmental changes imposed by governments and standard of living increases in developing nations are also driving inflation.

The writing of this article has been fluid due to the unfolding of the impact of President Trump’s Section 232 Trade Expansion Act. The most recent update at time of writing is that on June 1, Canada, Mexico and the European Union were added to the countries that will receive a tariff. The impact of these tariffs and the quotas already levied against South Korea, Argentina and Brazil is a shortening of supply and increasing prices for all steel products. There was already speculative inflation in the US domestic market before these resolutions, and we anticipate further inflation as a result. Anti-dumping and countervailing proceedings are also driving inflation for pipe, fittings and flanges. Several of these proceedings are already finalized with tariffs imposed against significant importing countries; the remainder have preliminary judgments and are close to resolution.

At MRC Global, we recognize that our role in the supply chain is critical to our customers, and we are constantly monitoring the market to make strategic buying decisions to help our customers mitigate against this fluid situation. Distribution can be an effective solution against a tight supply chain with elongated lead times.

Our new regional distribution center (RDC) in Houston, TX, is now fully functioning and provides support to our US branch network and our customer base in the Gulf Coast. At 415,000 sq. ft., it is our largest facility and holds $110 million of inventory. The valve and engineering center (VEC) located in the same facility is also our largest at 40,000 sq. ft., and order bookings have already exceeded 2017 levels.

MRC Global InSight

Our outlook for 2018 continues to be optimistic. Indications from analysts are generally reporting a continuing recovery of the oil price, which is a very encouraging lead indicator of CAPEX spend. Market gains through the downturn and the continuing improvement in market conditions offer a strong sentiment of growth for MRC Global in the years ahead.

InSight Magazine: October 2015

Robert Stein

Senior Vice President
Business Development
InSight Magazine: October 2015

John Bowhay

Senior Vice President
Supply Chain Management,
Valve & Technical Product Sales