CHICAGO Small and
regional steel service centers are worried about surplus
capacity, fierce competition and price volatility, according to
a wide-ranging AMM survey of service center sentiment.
National distributor chains are somewhat less anxious, although
they do acknowledge a slight slowing in activity.
"Business has truly slowed down.
If not for automotive, it would be really bad," said the owner
of a midsize chain of flat-rolled warehouses. "Inventories are
building and prices are collapsing like a deck of cards, with
mills fighting like crazy (for orders)."
Although numerous buyers have
decried additional output since last year from RG Steel LLC in
Sparrows Point, Md., the distributor said that the many
flat-rolled producers who operate at 80-percent capacity share
the blame. "The big guys have to take out capacity but
wont do it for fear of losing market share, he
said. "There are holes in the order books for June and July.
Even if the price falls, will service centers really buy?"
The president of a Midwest
regional chain agreed. His company created pricing models back
to 1980 and found that todays pricing cycles are three
times more volatile than in the past.
"We have a customer base that
has yet to recognize the increased volatility and the risk we
take," he said, adding that producers have failed to protect
distributionwhich is up to 40 percent of mills
customer basefrom such gyrations. "In the next 30, 60 or
90 days, (the volatility) will be no different than
beforewe lost $90 a ton in two months. The industry needs
to ... recognize how significant it is."
A trio of national service
center executives said they noticed activity slow from a very
strong first quarter. "I dont think the market is
completely bad," said a chief executive officer based in the
Southeast. "Service center shipments are a proxy for activity
at the end-user level. (End-users) are producing, but they are
not replenishing (steel) as quickly, which means service
centers suffer. The bright side is that activity at end users
is very attractive."
A national long products
distribution executive said that second-quarter orders are
below expectations, resulting in "inventories being pretty
robust," although he projects a pickup this month before the
typical summer slowdown.