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Steel service centers expect softer quarter

Keywords: Tags  Metals Service Center Institute, flat-rolled prices, shipments, order books, demand, automotive, natural gas, pipe profit margin


CHICAGO — Steel service centers experienced a healthy first quarter but are already seeing a slight softening during the second quarter, sources have told AMM.

U.S. and Canadian distributors shipped 12.86 million tons of steel products in the first three months of 2012, up 6.3 percent from just under 12.1 million tons in the same period last year, according to the Metals Service Center Institute.

"Our March shipments were strong, but bookings are a better story of what’s going to happen. They are definitely slower, and that includes the automotive segment," a source at a Michigan flat-rolled distributor said. "I don’t think there is as much optimism. The price of steel was raised to $700 (per ton), then to $720, but we are in for a flat market. They might wallow for a while."

Many buyers—even those who need to replace inventories—have not been easily enticed into placing orders, despite some mills offering to roll minimum quantities at around $10 below list price.

"The first quarter was a little bit better than last year, but ended with a bit of a sputter," an Illinois sheet distributor source said. "Everybody is still on the fence with where pricing is going. Did (announced hikes) stop the drop? Quoted prices are up from the mills, but closed deals aren’t that drastically changed."

Producers "are getting $700 or close to it, but in spots, with open schedules, they are making a few deals," he added.

The Illinois distributor source was one of several in the past couple of weeks who said they’re being quoted lead times of three to five weeks but material is arriving sooner than that.

At the distribution level, "the competition is not raising prices as you would think they should, with two published increases and a third on its way," he said, citing chatter about a $15- to $20-per-ton increase coming before the end of April from the mini-mills. "People are going as lean as possible."

Inventories held by U.S. and Canadian service centers totaled 10.58 million tons at the end of March, down 0.7 percent from 10.65 million tons a month earlier.

For one large Gulf Coast operator, "March was a scorcher, the best month in two years, and we are running ahead (of March) in April." He cited the continued strength of the natural gas sector, noting that the effects of $2-per-mmBtu pricing "hasn’t rippled through the supply chain."

There is still "a lot of pipe in the import yards," he said, and a "normal amount" is still scheduled to come in. Although "margins are not good, we feel pretty good about the second quarter."

An executive at a national long products distributor also said he’s seeing a slight slowing in April. "It’s nothing to panic about, but it’s not as good as March on a daily shipment basis," he said.

Peers he met with this week also are seeing softer bookings in the United States and Canada. "I was surprised with the hollow structural section (price) increase," he said, referring to recent hikes announced by HSS mills (AMM, April 17). "Demand does not justify it at all."


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