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Aluminum service centers optimistic despite dip

Keywords: Tags  Metals Service Center Institute, MSCI, service centers, U.S. aluminum product shipments, Canadian aluminum product shipments, inventories, federal budget impasse, sequestration cans

CHICAGO — Aluminum product shipments by U.S. and Canadian service centers fell in January compared with a year earlier, with some market observers blaming the decline on the inability of U.S. lawmakers to come up with a budget plan and the big cuts in government spending that could result.

But others contended that their own companies had seen shipment gains, arguing that the economic outlook for 2013 is brighter than that of a year ago.

U.S. service centers shipped 126,100 tons of aluminum products last month, up 37.2 percent from 91,900 tons the previous month but down 5.6 percent from 133,600 tons in January 2012, according to Metals Service Center Institute (MSCI) data. Inventories totaled 366,400 tons (2.9 months’ supply at current shipping rates) at the end of January, up 0.2 percent from 365,600 tons (4.0 months’ supply) at the end of December but down 2.1 percent from 374,300 tons (2.8 months’ supply) a year earlier.

Canadian distributors shipped 13,600 tons of aluminum products in January, up 60 percent from 8,500 tons the previous month but down 2.9 percent from 14,000 tons in January last year. Inventories at the end of last month totaled 40,700 tons (3.0 months’ supply), up 4.9 percent from 38,800 tons (4.5 months’ supply) in December and 19.4 percent higher than 34,100 tons (2.4 months’ supply) in January last year.

Some market sources chalked up the year-over-year decline in shipments to political gridlock in Washington.

"I think a lot of it just has to do with federal spending, corporate concerns about the economy until there is a budget in place, and whether we are going to hit sequestration and what that might mean," one distributor source said. The distributor source said it would be easy to brush off sequestration as an immediate issue only for those companies dealing with government contractors or subcontractors. But the reality is more complicated than that, he said. "Look down the road, just the can industry, how much Coke and Pepsi does the federal government buy?" He said that cuts also could hit the middle class hard, another reason that companies might err on the side of caution.

Still, the distributor said other indicators were positive, pointing to ramped-up merger-and-acquisition activity in the metals sector and a strong stock market. "The smart money is telling us (the budget) will get resolved," he said.

A second distributor source said concerns about the budget were impacting his company. One defense firm had ramped up orders ahead of the potential cuts while another had scaled back for the same reason, he said, although overall aluminum shipments by his company were up "pretty substantially" in January compared with the same month last year.

While margins were squeezed on aluminum plate because of an inventory build in late 2012, other product groups—from bar and tube to sheet—performed well, he said, and on a volume basis, even plate saw gains thanks in part to strong demand from the aerospace sector. Other promising sectors include semi-conductors, which have got off to a stronger start in 2013 than in 2012.

A third distributor source said that his company’s numbers didn’t reflect a decline in shipments from a year ago. Customers may be somewhat more cautious at the moment, but there is still business to be had, he said. "One customer might be preaching doom and gloom while the next is doing fine. It’s volatile ... but it averages out to be OK."

One area that has been slower in January is extrusions, the third distributor source said. He speculated that customers may have stocked up on inventory late in 2012 in advance of price increases and perhaps because of concerns about supply disruptions at Alcoa Inc.’s majority-owned Aluminerie de Bécancour Inc. (ABI). But those inventories, while higher than in the past, will most likely be brought down over the course of the first quarter, he said, with the extrusion market looking strong in the second quarter, which historically is the best period.

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