CHICAGO North American service center sources debated the future health of the aluminum market amid news that U.S. aluminum shipments and inventories dipped in May compared with a year earlier.
Some sources expect the second half of the year to be stronger, while others believe that the market will continue to muddle along where it is now. But some are concerned that continually weak shipment data and increasingly stiff competition could signal that manufacturing is in for a difficult year.
U.S. and Canadian service centers saw aluminum shipments decline in May from the same month last year, Metals Service Center Institute data show, while inventories fell in the United States but rose in Canada.
U.S. service centers shipped 132,400 tons of aluminum products last month, down 2.7 percent from 136,100 tons in May 2012, while inventories fell 4.6 percent to 368,000 tons (2.8 months supply at current shipping rates) from 385,700 tons (2.8 months supply) in the same comparison. Year-to-date shipments of 617,200 tons were down 7.1 percent from 664,200 tons in the first five months of last year.
Canadian service centers shipped 14,500 tons of aluminum products in May, down 0.5 percent from 14,600 tons a year earlier, while inventories increased 2.7 percent to 37,200 tons (2.6 months supply) from 36,200 tons (2.5 months supply) in May 2012. Shipments in the first five months of the year totaled 67,000 tons, off 4.1 percent from 69,800 tons a year ago.
Some sources attributed the Canadian declines to that countrys increased focus on the energy market and its struggling manufacturing sector. "Customers are uncertain about the long term, so they are keeping orders as short and as light as possible," one service center source said. "They are continuing to order only what they need." He said his company had seen growing competition not only from the firms it traditionally battles for business but also from smaller distributors looking to "flip" offshore material.
The growing number of suppliers fighting for ever-fewer orders has pushed down margins and prices and even brought mills into the fray as they look to grab small-volume business traditionally left to service centers, the source said, echoing a sentiment expressed by other market players. "Everything is more aggressive and more competitive, and you have to fight harder for ordersbut thats what keeps you on your toes," he said.
July and August likely will be difficult because of a normal seasonal slowdown in activity, but business should rebound in September and October, the service center source said, citing improving consumer confidence and spending data. Such indicators generally improve ahead of any uptick in manufacturing activity, he said, noting that 2014 should see more robust activity as automakers roll out more aluminum-intensive vehicles for the 2015 model year.
But a second service center source said there is "a true sense of worry and concern in the marketplace right now." While some economic indicators may be pointing up, conversations with customers suggest that "manufacturing is heading in another direction," he said.
"I am one of the biggest glass-half-full people you will run into, but I just dont see where the optimism is coming from," the second service center source said, citing plate prices he characterized as being "in the gutter" largely because of overseas competition.
A third service center source brushed off the current dip in aluminum shipments, predicting a strong second half and an even stronger 2014. "Its like golf: You bring the club back and have a momentary pause before you make a big swing," he said.
The third source contended that a host of macroeconomic indicatorsfrom the stock market and gross domestic product to unemployment and new housing startspoint to better times ahead. "When things are going south, there are indicators that we just dont see on the horizon right now," he said. "Lead times are not shrinking dramatically, and we are not seeing mills blow the bottom out of the pricing structure."
The third service center source also said that the internal indicators his company uses to gauge business, such as activity at its call centers, were largely positive. Call center inquiries and orders have been up for the past three months, something that historically has foreshadowed an increase in larger-volume contract business, he said.
"Im digging a hole for a swimming pool because its going to be a good (second half)," he joked.