The voices of service center players have not been as buoyant
in the second quarter of 2012 as they were during the first.
Demand sucks; there is none.
Everyone is cautious right now.
The reality is that theres decent demand and
theres too much capacity.
You have too many suppliers chasing too few
The mills are saying they cannot afford to go lower
The summer lull (came) early for us this
(Some) people loaded up in the first quarter and are
working their way through that.
These are all statements from service center executives
during the second quarter, reflecting a growing unease with the
direction of demand for carbon steel and stainless steel
As the second half of 2012 gets under way, recent falls in
some steel prices and a still-stagnant construction market have
some service centers worried that things might get
worseor, at best, remain relatively flatbefore they
get better, an idea they were not entertaining six months ago,
when more robust times appeared to be on the horizon.
Domestic steel sheet prices east of the Rockies fell
throughout May as service center customers sat out the
softening market awaiting a new pricing floor. Sources largely
attributed the decline to a continued excess of supply. A mill
source described the sheet market as well supplied,
thus pressuring prices, which began to slide early in May after
stalling out in late April.
Theres too much capacity in the market, and the
price of scrap has been more or less stable, a Midwest
service center source said of the weakening prices.
Meanwhile, a falling-to-sideways ferrous scrap market has
failed to lend support to steel prices, while concern grows
that the European slowdown will affect the North American
Many market players said planned summer outages could give
mills an opportunity to introduce price increases in July or
August for new orders starting in August and September.
Distributors have said that they remain loath to build
inventory, especially leading into the summer months, further
putting downward pressure on prices. The fundamentals of
readily available material and steady demand continue to hang
over prices, with buyers saying they see little sign of change
The solution is the mills either cut back, or the
economy bounces back and absorbs the tons, one
distributor source said.
Two other service center operators claimed some of their
peers did buy extra steel ahead of anticipated price hikes.
Most people still have a lot of material, an
executive in the Midwest said.
A source at 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
didnt stick to the extent hoped for, he said.
The Midwest processor source suspects there is additional,
unaccounted-for inventory at the mill level. As a result,
its hard to judge a stock inventory order vs. a
purchase order you have in house, he said. It will
be interesting to see how long the (planned) maintenance
outages last. The big question is whether to continue
buying regularly or to go leaner and wait out the pricing
The most recent numbers available from the Metals Service
Center Institute (MSCI) show U.S. and Canadian steel shipments
dipped in April to their lowest level in four months, helping
spur a 2.5-percent rise in inventories from the previous month,
even as demand continued to hold steady despite some erratic
moves in spot pricing, market participants told
Inventories did increase, Metals USA Holdings
Inc. chairman and chief executive officer Lourenco Goncalves
said in mid-May. 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 MSCI reported that steel inventories at U.S. and
Canadian service centers topped 10.84 million tons at the end
of April, up from less than 10.6 million tons in March, while
shipments fell 7 percent to 4.07 million tons in April from
4.38 million tons the previous month. On a per-day basis,
however, shipments fell 2.1 percent in the United States and
less than 0.4 percent in Canada.
Goncalves does not think distributors bought too much steel,
but that their customers sat on the sidelines. 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, he said. Customers are replacing
what they consume, but a higher price is not part of the
equation right now.
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
Shipments by stainless steel distributors also fell in April
after three consecutive month-on-month increases, according to
MSCI data. Shipments of all stainless shapes totaled 144,200
tons in April, down 8 percent from 156,700 tons in March and
marginally lower than 144,700 tons in April last year, putting
the year-to-date total at 607,300 tons, 2.1 percent lower than
620,100 tons in the first four months of 2011.
One southern service center manager said that a restocking
drive by his customers that started earlier this year had ended
A market source agreed. They (customers) feel they
have enough, and if they dont, they feel they can
scramble and get it cheaper later due to falling nickel
prices, he said.
The West Coast flat-rolled steel market also has slowed as
buyers become cautious about making commitments.