Service centers report ‘more upside than downside potential’

Feb 29, 2012 | 07:00 PM | John Ambrosia

Tags  North American metal shipments, service center shipments, service center outlook, Metals Service Center Institute, Lourenco Goncalves, David H. Hannah, John Ambrosia

Overall business activity is improving from last year’s levels, buoyed by strong monthly reports showing increases in service center shipments, some of the largest American metal processing and distribution companies said.

Improvements are expected to be slight, though, because a number of factors beyond shipping levels still worry players in the industry: a depressed construction market, the European sovereign debt crisis and the volatility that typically accompanies a presidential election year.

But because Metals Service Center Institute (MSCI) shipment statistics improved in each month of the fourth quarter, some optimism has crept into the market.

Service center sources confirmed that business was steady, and while volumes weren’t back to pre-recession levels, they said they were still buying and selling steel on a daily basis. “It’s steady. I don’t think it’s crazy, but people are buying,” one distributor source said.

Domestic steel demand appears to be on the upswing, bolstered by strengthening activity in the oil and gas, automotive, heavy equipment and general manufacturing sectors, according to Metals USA Holdings Corp. president and chief executive officer Lourenco Goncalves.

“We see more upside than downside potential,” he told investors during the company’s year-end earnings conference call in late January, predicting that steel demand would outpace any increases in U.S. gross domestic product (GDP) this year. “We saw improvements in 2011, and even more improvements are expected in 2012.”

Those improvements are expected to follow a more traditional seasonal pickup this year after years of volatility, Goncalves said. “The typical seasonality of our business is back. We expect the first quarter to be better than the fourth quarter, and the second quarter will be incrementally more profitable than the first quarter.”....