Higher steel prices for oil-country tubular goods (OCTG) are here to stay, according to Chuck Keszler, chief financial officer, Lone Star Technologies Inc. The Dallas-based maker of specialty tubing products, flat and rolled steel, and casing and production tubing began a $100-million stock buyback program in the fourth quarter. It reported revenues of $1 billion for the first nine months of 2006.
Keszler briefed analysts at the 9th annual oil and gas conference of the New York Society of Security Analysts recently.
"Steel prices were 15% higher in the third quarter than in the first quarter, which caused our earnings to be a bit lower. We think higher steel prices are here to stay."
Lone Star is the largest domestic supplier of OCTG, but its business is increasingly international. It has or plans tubing-manufacturing joint ventures in China and Brazil.
In early 2007, the company expects Chinese government approval of its new joint venture there, with Valin Tube & Wire. "These deals globalize our manufacturing base and help us access growing markets abroad. They will be accretive in 2007."
Steel imports make up 52% of U.S. consumption. OCTG inventories rest at about 5.5 months of demand, he said, with suppliers being somewhat cautious after gas prices fell earlier in 2006. Deeper drilling, drilling for unconventional resource plays and international activity have increased, which correlates to higher OCTG demand.
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