Steel Center Shipments Climb 4.5%, Stocks Lag
CHICAGO — Steel shipments by U.S. and Canadian service centers last month increased 4.5 percent from April to the second-highest level this year. But inventories rose just 1.3 percent, with distributor sources telling AMM exactly why they aren’t replacing steel at the same rate they’re selling it.
"The memories of 2009 have not faded away," said the purchasing manager for a national distributor based in the South. "If anybody calls and says, ‘I use this, this and this—put it in on the floor and I’ll let you know when I’ll take it,’ we say, ‘No, thank you, call somebody else.’"
The cautious approach is prevalent. "There have been so many conflicting reports—one day saying pricing is going up, then weaker the next day—people are a little uncertain, which makes them cautious on buys," the president of a Great Plains company said. "Our customers are fairly optimistic (two months ahead), but I think it’s a case of a summer slowdown combined with price uncertainty that is holding back service center buys."
The owner of an East Coast coated coil distributor agreed. "There are forces for and against prices rising," he said, quoting hot-rolled coil spot prices at $750 to $760 per ton. "You’ve got downward pressure on demand into the summer months, but then you’ve got upward pressure as raw materials are spiking. It’s a conundrum. When you combine all of that, service centers are reluctant to fill inventory."
What helps is that flat-rolled lead times are down to two to four weeks, he noted.
What could change the picture is the potential for what he calls a "mini-event" in scrap. As the low dollar puts domestic scrap on outbound ships and original equipment manufacturer (OEM) maintenance shutdowns reduce scrap flows for a few weeks, "that creates a little bubble" for ferrous scrap pricing, which would be reflected in steel surcharges.
There has been a heavy rotation of commercials by scrapyards on local cable television channels in the New York/New Jersey market, which he thinks "re-emphasizes the fact that scrap is tightening."
Macroeconomic forces are at work on buyers’ psyches, too, according to the president of a western Ohio company. "Although people don’t want to think about (sovereign debt in) Greece, it’s extremely concerning that it could ripple out to other countries, (which could also announce), ‘Sorry, America, we can’t pay you back.’"
Locally, as farmers and ranchers clean up from the destruction of spring flooding and tornadoes and find they need to replace trucks, tractors, wagons, metal buildings, fencing and posts, steel order activity from the agricultural economy has picked up, he said.
But his customers’ approach is still "when we have it (our products) sold, and when we need to have the steel, we’ll buy it from you," the Ohio executive said. "So we are floating along relatively smoothly, but a number of black clouds are sitting and waiting. Will we see storms or sunny skies? That is why nobody is buying any more steel than is immediately needed."
The purchasing manager in the South worries that producers are going to cost themselves money with their price reductions. "The market is not robust by any means, and making money is important. That’s why it befuddles me as to why mills continue to reduce prices. It’s obvious the whole battle is over market share. Everybody learned how to make money at low operating rates, and some mini-mills can operate a beam mill at under 50 percent, so why drop the price $80 a ton except for market share? No one can stomach sitting in meetings being told they lost some market share," he said.
The Great Plains distributor continues to be very risk-averse in purchasing. "We probably have 2.5 months’ supply, maybe three on some items," compared with 90-days-plus he carried a few years ago. "We’re not uncomfortable with the stock we have," he added.
U.S. and Canadian companies shipped a combined 4.03 million tons of steel in May, up 4.5 percent from nearly 3.86 million tons the previous month, while combined inventories of 9.83 million tons were up only 1.3 percent from 9.7 million tons at the end of April, according to data released Friday by the Metals Service Center Institute (MSCI).
U.S. distributors shipped an average of 166,800 tons of steel per day in May, up 4.7 percent from 159,300 tons in April, while daily average shipments in Canada increased 2.9 percent to 25,200 tons from 24,500 tons in the same comparison. Both the U.S. and Canada had 21 shipping days in May, the same as in April.
Year to date, U.S. distributors shipped 17.28 million tons of steel, a 20.3-percent jump from 14.37 million tons in the first five months of 2010. In Canada, year-to-date shipments totaled 2.7 million tons, up 14.4 percent from 2.36 million tons a year earlier.
U.S. inventories totaled 8.3 million tons, or 2.4 months’ supply at current shipping levels, compared with 8.18 million tons (also 2.4 months’ supply) a month earlier. Canadian inventories inched up to 1.54 million tons (2.9 months’ supply) at the end of May from 1.53 million tons (3.0 months’ supply) at the end of April.