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Excess steel capacity prompts timing game

Keywords: Tags  Metals Service Center Institute, steel shipments, inventories, flat-rolled pricing, supply-demand balance, Metals USA, Lourenco Goncalves, mill maintenance outages


CHICAGO — April steel shipments by service centers dipped to their lowest level in four months, helping spur a 2.5-percent rise in inventories from the previous month even as demand continues to hold steady despite some erratic moves in spot pricing, market participants told AMM.

"Inventories did increase," Metals USA Holdings Inc. chairman and chief executive officer Lourenco Goncalves said Tuesday. "But this is not a number to scare anyone. History will show numbers that are way above 10 million tons with very healthy dynamics in the marketplace."

The Metals Service Center Institute (MSCI) reported that steel inventories topped 10.8 million tons at U.S. and Canadian service centers in April, up from less than 10.6 million tons in March, while combined shipments fell 7 percent to 4.07 million tons from March’s 4.38 million tons. On a per-day basis, however, shipments fell 2.1 percent in the United States but less than 0.4 percent among Canadian distributors.

Goncalves does not think distributors bought too much steel, but said their customers sat on the sidelines last month. "The biggest motivation to buy steel in a decent economy is when customers feel that steel will be more expensive within the next week or 10 days." Customers are replacing what they consume, but a "higher price is not part of the equation right now," he claimed.

As a result, mills are cost-squeezed, and "we are starting to see high-cost players have trouble. I would not be surprised if the supply side starts to dry up," Goncalves said.

Two other service center operators claimed some of their peers did buy extra steel ahead of anticipated price hikes.

"(Some) people loaded up in the first quarter and are working their way through that," said an executive in the Midwest. "Most people still have a lot of material."

A Midwest flat-rolled processor suggested stocks were built up, in part, because mills misquoted delivery dates and steel arrived earlier than expected. "Some people anticipated price increases would stick and hedged, but they didn’t stick to the extent hoped for," he added.

The Midwest processor suspects there is additional, unaccounted-for inventory at the mill level. As a result, "it’s hard to judge a stock inventory order versus a purchase order you have in house.

"It will be interesting to see how long the (planned) maintenance outages last," the Midwest processor said. The big question is whether to continue buying regularly or "to go leaner and wait out the pricing war."


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