Aluminum distributors had a tough row to hoe in the first quarter as shipments fell, and viewpoints ranged from sour to optimistic.
U.S. and Canadian aluminum shipments from service centers declined compared with the first three months of last year, leaving market participants debating whether the pullbacks represented a short-term blip or something more.
U.S. service centers shipped 357,300 tons of aluminum products in the first quarter, down 10.5 percent from 399,100 tons in the same period a year earlier, according to Metals Service Center Institute (MSCI) data, while inventories slipped 3.1 percent to 362,400 tons at the end of March (3.1 months supply at then-current shipping rates) from 374,100 tonnes (2.8 months supply) in March 2012.
Canadian distributors shipped 38,300 tons of aluminum products in the first three months of this year, down 8.4 percent from 41,800 tons a year earlier, but inventories increased 7.2 percent to 37,800 tonnes (2.9 months supply) from 35,300 tons (2.5 months supply) in March 2012.
Market sources generally agreed that the decline in total inventories resulted from a combination of continued conservative buying patterns and a push by the industry to reduce inventories and turn them as often as possible, particularly given continued fiscal uncertainty in Washington.
Everyone is holding their breath to see what is going to happen with the markets and sequestration, one aluminum distributor source said.
A second distributor source said his company was seeing a mixed bag of business, depending on the sector. The leading indicator is that the order receipts are down and inventories are trailing, so clearly there is a correction taking place, he said. The secondary distribution business, for example, has gotten flat to soft. People are buying what they need. No one is buying against a potential price increase or shortage.
But any inventory correction is likely a short-term one, especially with strong demand from such sectors as commercial and private aerospace, where business is expected to continue to be solid through 2014 and beyond, the second distributor source said. Chemical, petrochemical and value-added fabrication markets also are doing well, he said.
While the market might be experiencing a momentary pause and might not surge back as quickly as previously expected in 2013, the year should still see a steady uptick in business, he predicted, citing other positive factors, such as customers paying on time more often in 2013 than in recent years.
Additionally, the impact of sequestration shouldnt be overstated, the second distributor source said. Even with sequestration ... this market compared to what it was 12 to 15 years ago is way better, he said, contending that some companies might be looking to see a return to business levels experienced in the run-up to and during the height of the wars in Afghanistan and Iraq. That wasnt sustainable, and you cant compare anything to that (period). Thats like comparing a cage match to boxing.
Some market observers blamed the decline in service center shipments on political gridlock in Washington. But others contended that their own companies had seen shipment gains, and argued that the economic outlook for 2013 is brighter than that of a year ago.
I think a lot of it just has to do with federal spending, corporate concerns about the economy until there is a budget in place, and ... what (sequestration) might mean, a third distributor source said. It would be easy to brush off sequestration as an immediate issue only for those companies dealing with government contractors or subcontractors, but the reality is more complicated than that, he said. Look down the road, just the can industry, how much Coke and Pepsi does the federal government buy?
Cuts also could hit the middle class hard, he said, another reason that companies might err on the side of caution. Still, other indicators were positive, he said, pointing to ramped-up merger-and-acquisition activity in the metals sector and a strong stock market.
Another distributor source said concerns about the budget were impacting his company. One defense company had ramped up orders ahead of potential sequestration cuts, while another had scaled back for the same reason, he said, although overall aluminum shipments by his company were up pretty substantially in January compared with the same month last year.
While margins were squeezed on aluminum plate because of an inventory build in late 2012, other product groups--from bar and tube to sheet--performed well, he said, and on a volume basis even plate saw gains thanks in part to strong demand from the aerospace sector. Other promising sectors included semi-conductors, which started 2013 on a stronger note than in 2012.
Yet another distributor source said that his companys numbers didnt reflect a decline in shipments from a year earlier. Customers might be somewhat more cautious, but there is still business to be had, he said. One customer might be preaching doom and gloom while the next is doing fine. Its volatile ... but it averages out to be OK.
Although the March figures from the MSCI were disappointing compared with the same month last year, they nevertheless rebounded from the previous month. Some market participants argued that a seasonal uptick in activity was beginning to emerge, while others said the usual spring rebound had thus far failed to materialize.
U.S. and Canadian service center aluminum shipments totaled 129,800 tons in March, up 2.9 percent from 126,200 tons the previous month but down 13.4 percent from 149,800 tons a year earlier, according to the MSCI data.
We were concerned about business (in March) but have seen a rather good uptick in April, one service center source said. I would call it a definite reversal in trends.
April results should be strong, mostly because of normal seasonality, with warmer weather bringing increased demand from the building and construction sector in particular, he said. Construction activity across large swathes of the United States might have been hindered in March by cold weather and snow, he speculated.
But another distributor source questioned whether optimism about an April rebound might be misplaced. Ive not heard anything good from my customers, and we had a pretty good March--so I would be surprised if April is better, he said.
U.S. service centers shipped 116,900 tons of aluminum products in March, up 2.3 percent from 114,300 tons the previous month but down 13.7 percent from 135,500 tons in March 2012. Canadian distributors shipped 12,900 tons in March, up 8.4 percent from 11,900 tons in February but off 9.8 percent from 14,300 tons a year earlier.