Higher shipments and tighter inventories at U.S. steel distributors so far this year could amplify the impact of fewer imports in the coming weeks and months, potentially pinching supply and pushing prices up in the aftermath of the Section 232 delays.
For the near term, we actually expect prices to flatten or decline in the second half, Eagle Pipe co-founder, president and chief executive officer Brandon Dewan told AMM in mid-August. Were seeing the mills dropping prices now for the fourth quarter, so we do expect prices to drop in the second half.
That could change, however, if the results of the Section 232 probe are released in November and domestic mills begin to see less competition from steel imports due to suppressed ordering activity ahead of the 232 probes original end-of-June deadline. Then, we could be set up for some tightness in the market, Dewan said. Its a dynamic situation.
Eagle Pipe, which supplies oilfield tubular products, has seen demand for its products increase recently due to surging rig counts, he said. What weve experienced over thefirst part of the year leading into July is rapid growth in terms of the market in general, Dewan said, noting that some of that growth has also been driven by drilling efficiency gains.
Although the Houston-based distributor expects momentum to slow somewhat in the second half, we also expect demand will stay relatively healthy, he said.
U.S. steel product shipments totaled 23.05 million tons in the first seven months of this year, up 3.3 percent from 22.32 million tons in the same period last year, accordingto data from the Metals Service Center Institute (MSCI). In July, shipments reached more than 2.96 million tons, down 13.5 percent from 3.42 million tons in June but up 1.4 percent from nearly 2.92 million tons in the same month a year ago.
Shipping volumes increased year on year across all product types, including flat-rolled, plate, bar, structural, pipe and tube, and stainless, according to Seth Rosenfeld, an equity analyst at New York-based Jefferies.
We viewed Julys data with cautious optimism on potentially improving near-term demand trends, he wrote in a research note dated Aug. 15. Julys seasonally adjusted MSCI data was atypically strong despite the seasonal weakness in unadjusted volumes, possibly illustrating improved momentum in the U.S. steel demand recovery, which appeared increasingly fragile in recent months.
Meanwhile, steel inventories at U.S. service centers totaled 7.54 million tons (2.5 months supply at current shipping rates) at the end of July, marking the third consecutive month of restocking, according to the MSCI data. Thats up 3.9 percent from 7.26 million tons (2.1 months supply) in June but is 3.9 percent below the 7.85 million tons (2.3 months supply) recorded in July 2016.
Inventory levels appear more normalized relative to typical seasonality compared with levels seen in June, which were 10 percent to 15 percent below average amid 232 uncertainty, according to Philip Gibbs, an analyst at Cleveland- based KeyBanc Capital Markets.
We were stocking up to prepare for what we thought was going to be the implementation of the 232 at the end of June. ... Now we are pulling back on orderingespecially on speculative tonsmoving into the second half, Dewan said.
With Section 232 on the sidelines as the administrations trade policy focus shifts, investors are refocusing on fundamentals, Rosenfeld said. We maintain a positive view on steel fundamentals through the balance of 2017 and into 2018.