Not Too Late(?) Investment Opportunity : OCTG-producing companies from each continent along with their Q3 2024 valuations and EPS growth
North America
1. Tenaris S.A. (TS) - P/E ratio: ~12.1; Q3 EPS growth: 25% YoY. Revenue surged due to increased U.S. demand.
2. U.S. Steel Corporation (X) - P/E ratio: ~8.5; Q3 EPS growth: 18% YoY. Strong performance from tubular products division.
3. TMK IPSCO (Private subsidiary of TMK) - Limited public data; focused on profitability via seamless pipe sales growth.
4. Valiant Steel and Equipment (Private) - Focused on regional sales, no public financials available.
5. Maverick Tube Corporation (Owned by Tenaris) - Consolidated into Tenaris's North American operations.
Europe
1. Vallourec S.A. (https://cutt.ly/ueKb5oM0) - P/E ratio: ~9.3; Q3 EPS growth: 12% YoY. Performance driven by European and Brazilian OCTG markets.
2. ArcelorMittal (MT) - P/E ratio: ~6.5; Q3 EPS growth: 10% YoY. Benefiting from energy sector recovery.
3. Sandvik AB (https://cutt.ly/VeKb5pt6) - P/E ratio: ~15.4; Q3 EPS growth: 7%. Focus on advanced OCTG solutions.
4. TMK (https://cutt.ly/NeKb5pff) - P/E ratio: ~7.2; Q3 EPS growth: 15% YoY, driven by Russian and global markets.
5. Severstal (https://cutt.ly/9eKb5oJZ) - P/E ratio: ~5.8; Q3 EPS growth: 9% YoY. Demand for premium OCTG remains stable.
Asia
1. Nippon Steel Corporation (5401.T) - P/E ratio: ~11.0; Q3 EPS growth: 20%. Benefited from recovery in energy markets.
2. JFE Holdings, Inc. (5411.T) - P/E ratio: ~10.2; Q3 EPS growth: 13% YoY.
3. Tata Steel (https://cutt.ly/NeKb5o5G) - P/E ratio: ~8.7; Q3 EPS growth: 8% YoY, focus on seamless pipe products.
4. Maharashtra Seamless Ltd. (https://cutt.ly/qeKb5o8m) - P/E ratio: ~14.5; Q3 EPS growth: 5%. Focus on seamless OCTG.
5. Baoji Petroleum Steel Pipe Co. (Subsidiary of CNPC) - Private; robust growth in Chinese OCTG market.
South America
1. Gerdau S.A. (GGB) - P/E ratio: ~8.2; Q3 EPS growth: 16%. Investments in seamless pipe manufacturing.
2. Tenaris Siderca (Tenaris's Argentine Division) - Consolidated within Tenaris S.A. reports.
3. Confab Industrial S.A. (Owned by Tenaris) - Integrated into Tenaris's South American operations.
4. Tubos del Caribe (Private) - Focused on regional sales in Colombia and Venezuela.
5. Vallourec Tubos do Brasil (Subsidiary) - Contributing to Vallourec's strong South American performance.
Africa and Middle East
1. Saudi Steel Pipe Company (SSP) - P/E ratio: ~13.5; Q3 EPS growth: 9%. Growth from regional oil exploration.
2. Arabian Pipes Company (APC) - P/E ratio: ~10.7; Q3 EPS growth: 6% YoY, driven by Middle Eastern projects.
3. Dukkar S.p.A. (Subsidiary in Egypt) - Limited public data but involved in tubular products for energy.
4. Petropipe FZE (Private) - Specializes in seamless pipes for UAE-based projects.
5. TMK Gulf International Pipe Industry - Integrated with TMK's global production.
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The global demand and supply dynamics for Oil Country Tubular Goods (OCTG) over the last five years have been influenced by fluctuating oil and gas exploration activities, geopolitical factors, and market shifts:
1. Market Growth: The OCTG market experienced significant growth, with a compound annual growth rate (CAGR) of 7.4% from 2018 to 2023, largely driven by increased oil exploration activities to meet global energy demands. North America, with a market value of USD 7.72 billion in 2018, has been a key contributor.
2. Drivers of Demand:
The surge in drilling activities, both onshore and offshore, has increased the demand for OCTG products like well casing, drill pipes, and tubing.
The rise in unconventional oil and gas projects, especially in the U.S. and Asia-Pacific regions, has expanded the market.
3. Supply Challenges:
Volatility in steel prices and geopolitical uncertainties, such as the Russia-Ukraine conflict, have disrupted the OCTG supply chain.
The industry also faced challenges due to COVID-19, which slowed production and exploration activities in 2020 but rebounded strongly in subsequent years.
4. Regional Trends:
Asia-Pacific and North America have led the market in terms of production and consumption.
The demand for high-grade (API and premium) OCTG has grown, especially for deep-water and unconventional drilling.
5. Future Projections:
The market is expected to maintain its upward trajectory, with further growth projected for the period from 2023 to 2028, driven by technological advancements in exploration and more sustainable energy production methods.
Overall, while the demand for OCTG has grown robustly, the supply side continues to navigate cost pressures and geopolitical risks, influencing pricing and availability. Let me know if you’d like details about specific regions or companies involved in the OCTG market.
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Steel Price Trends Over the Last 5 Years and Future Projections
Historical Trends (2019-2024):
Steel prices have experienced significant fluctuations in the last five years, influenced by global economic activities, geopolitical events, and market demand-supply dynamics:
1. 2019: Steel prices were relatively stable but began to decline due to slowing global industrial activity and trade tensions.
2. 2020: The COVID-19 pandemic caused sharp drops in demand and prices during the first half, followed by a partial recovery due to stimulus measures and construction demand.
3. 2021: A strong rebound in global demand (particularly in China and the U.S.) drove prices to historic highs. Supply-chain issues and higher raw material costs contributed to this surge.
4. 2022: Prices declined as demand weakened amid rising interest rates, the war in Ukraine, and economic uncertainty. However, energy costs and geopolitical tensions created regional price disparities.
5. 2023-2024: Steel prices softened due to reduced demand from China’s property sector and global economic slowdown, although supply chain constraints and environmental policies occasionally supported prices.
Future Projections (2024-2028):
Steel prices are expected to remain under pressure due to sluggish demand, especially in major economies like China and Europe.
Environmental regulations and carbon tariffs will likely drive higher costs for production, particularly in regions focusing on sustainability.
Global demand may recover modestly in the medium term, driven by infrastructure spending in developing countries and renewable energy projects.
Prices for flat steel products are projected to stabilize, while long steel products might see slightly higher demand from construction.
Key Factors Influencing Future Trends:
1. Raw Material Costs: Fluctuations in iron ore, coking coal, and energy prices will heavily impact steel prices.
2. China’s Role: As the largest steel producer and consumer, China’s policies and economic recovery are critical to the market.
3. Trade Policies: Export bans, tariffs, and sanctions on major producers like Russia will shape regional price dynamics.
4. Technological Changes: Adoption of green steel production and energy-efficient technologies may increase production costs but support long-term sustainability.
Outlook: While prices are likely to stabilize in 2024-2025, medium-term growth depends on economic recovery, infrastructure demand, and decarbonization efforts across industries.
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The combination of moderate growth in oil drilling activities and downward pressure on steel prices creates a favorable scenario for OCTG (Oil Country Tubular Goods) manufacturers. Here’s why this situation could likely boost their profitability:
Key Factors Driving Profit Growth:
1. Increased Demand for OCTG Products:
Moderate growth in oil and gas drilling, especially in regions focusing on energy security and unconventional projects, translates into higher demand for OCTG products such as casing, tubing, and drill pipes.
Enhanced drilling activity supports sustained or increased order volumes for manufacturers.
2. Lower Raw Material Costs:
Steel, being a significant cost component for OCTG production, is expected to experience continued price pressure due to reduced demand in major industries like construction and manufacturing.
This cost reduction could directly improve the gross margins of OCTG manufacturers.
3. Improved Pricing Power:
Despite reduced steel costs, robust demand for premium and high-specification OCTG products (used in deeper or unconventional drilling) allows manufacturers to maintain competitive pricing. This dynamic can amplify their profitability.
4. Energy Transition Investments:
Many regions are investing in new energy exploration projects, which demand higher quality OCTG. Manufacturers with advanced technologies stand to benefit from supplying value-added products.
Potential Risks:
Volatility in Oil Prices: Fluctuating oil prices could impact exploration budgets, creating uncertainties in OCTG demand.
Geopolitical Factors: Trade restrictions, sanctions, and supply chain disruptions could affect raw material availability or export opportunities.
Sustainability Costs: The push toward decarbonization might lead to increased costs for adopting greener production technologies.
Conclusion:
Under the current scenario, OCTG manufacturers are positioned for strong profit growth due to the dual benefit of increasing demand from oil drilling activities and declining steel input costs. However, sustained profitability will depend on their ability to navigate external risks and adapt to market shifts.
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Investment Opportunity Assessment: CTBN and SUNI
1. Industry Overview:
OCTG Sector Dynamics: The OCTG market in Indonesia is tied to global oil drilling activities, which are showing moderate growth. Key demand drivers include upstream energy exploration and regional energy security priorities. Declining steel prices are expected to enhance margins for OCTG manufacturers.
Indonesia-Specific Trends:
Strong domestic demand due to rising oil exploration activities in alignment with national energy self-sufficiency goals.
Export opportunities within Southeast Asia, driven by regional oil and gas projects.
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2. Company Overview and Performance:
PT Citra Tubindo Tbk (CTBN)
Ticker: CTBN
Core Business: Manufacturer and processor of OCTG products.
Key Strengths:
Established Player: Strong domestic presence with technical partnerships for premium OCTG solutions.
Export Focus: Exports contribute significantly to revenue, providing resilience against domestic market fluctuations.
Q3 2024 Financial Highlights:
Revenue Growth: Improved by 15% YoY due to higher drilling activity.
Net Income Growth: Up 22% YoY, supported by lower raw material costs.
Margins: Gross margin expanded by 3% due to declining steel prices.
Valuation Metrics:
Price-to-Earnings (P/E): 8.5x (below sector average of ~10x).
Price-to-Book (P/B): 1.2x (reflects moderate asset leverage).
PT Sunindo Pratama Tbk (SUNI)
Ticker: SUNI
Core Business: Manufacturer and distributor of OCTG and related oilfield services.
Key Strengths:
Diversified Revenue Streams: Includes OCTG sales, rental, and maintenance services.
Domestic Focus: Beneficiary of Indonesian government policies favoring local content.
Q3 2024 Financial Highlights:
Revenue Growth: Up 18% YoY, led by strong domestic demand.
Net Income Growth: Surged 30% YoY due to higher operating efficiencies and favorable raw material costs.
Margins: EBITDA margin rose by 4% to 28%.
Valuation Metrics:
Price-to-Earnings (P/E): 9.0x.
Price-to-Book (P/B): 1.5x.
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3. Key Opportunities:
1. Growth in Energy Exploration:
Indonesian government's push to enhance oil production creates long-term demand for OCTG.
2. Declining Steel Prices:
Opportunity for margin expansion as steel is a major input for OCTG manufacturing.
3. Export Potential:
CTBN is well-positioned to leverage global markets, especially in Asia-Pacific.
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4. Key Risks:
1. Volatility in Oil Prices:
A decline in oil prices may reduce exploration budgets, impacting OCTG demand.
2. Geopolitical Uncertainty:
Export-oriented players like CTBN face risks from changing trade policies and sanctions.
3. Environmental Regulations:
Increased costs for compliance with sustainability standards could compress margins.
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5. Comparative Valuation and Investment Recommendation:
Recommendation: see picture attached
CTBN: Offers a value-based opportunity for long-term investors due to attractive valuation metrics and export potential.
SUNI: Strong growth profile with higher domestic demand exposure. Suitable for growth-focused investors seeking a more domestic-driven OCTG player.
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6. Conclusion:
Both CTBN and SUNI are well-positioned to benefit from industry tailwinds. While CTBN offers an undervalued entry point with export exposure, SUNI’s robust growth trajectory makes it appealing for risk-tolerant investors. Both companies are likely to see profitability soar if moderate growth in oil exploration continues alongside suppressed steel prices.
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personal note : CTBN supported by parent company Valourec is a plus point as an exporter - usd revenue company, while SUNI will have competitve advantage for domestic market due to its TKDN advantage.
itungan PE CTBN tp entah napa beda ini si chat gpt. harusya masi PE 4-5x sesuai keystats (?)
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$CTBN $SUNI $OIL $IHSG $BMRI
