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Steel service centers maintaining caution

Keywords: Tags  steel, Metals Service Center Institute, MSCI, Middletown, AK Steel, steel distributors, destocking, Catherine Ngai

NEW YORK — U.S. and Canadian steel service centers continue to buy on an as-needed basis due to squeezed margins and changes on the supply side.

U.S. service centers shipped nearly 3.35 million tons of steel in June, according to Metals Service Center Institute (MSCI) data, down 8.5 percent from 3.66 million tons the previous month and 4.7 percent lower than 3.51 million tons in June last year.

In Canada, distributors shipped 453,700 tons of steel last month, down 11.9 percent from 515,000 tons in May and 14.6 percent lower than 531,200 tons a year earlier.

On the flat-rolled side, market players said low inventory levels and recent supply disruptions—including an unplanned outage at AK Steel Corp.’s Middletown, Ohio, facility and the lockout at U.S. Steel Corp.’s Lake Erie Works in Nanticoke, Ontario—have provided stability and supported successful rounds of price hikes.

Morgan Stanley & Co. LLC analysts seemed to agree, writing in a research note that service center shipments highlight an "unusual break from normal seasonal patterns," which could indicate strength in U.S. steel markets.

Others, however, warn that the upward momentum could be short lived, particularly with AK’s slated restart and resumed negotiations between U.S. Steel and union workers.

"When you have a time of low inventory and belief that prices are increasing, people are more comfortable to put orders into the pipeline," a Midwest flat-rolled distributor source said. "With some shortage of tons, price increases are going to happen. But once certain supply-side issues come back, the bricks will come out of the foundation."

Competition on the service center level also has been increasingly tough, causing some to reconsider loading up on extra steel.

"I don’t think the higher pricing is going to hold. Our books aren’t really that strong," a second Midwest flat-rolled distributor source said. "Business has been steady, but all new business today is coming from stealing someone else’s business. If I could, I would cut my inventory levels by half because selling prices are getting so volatile."

U.S. service centers held 7.95 million tons of stock at the end of June, the equivalent of 2.4 months’ supply at current shipping levels, down 1 percent from 8.03 million tons (2.2 months’ supply) a month earlier and down 11.9 percent from 9.02 million tons (2.6 months’ supply) in June 2012, according to the MSCI.

Canadian distributors held inventories of 1.48 million tons (3.3 months’ supply) at the end of last month, down 2.5 percent from 1.52 million tons (3 months’ supply) in May and 7.4 percent below 1.6 million tons (3 months’ supply) a year earlier.

Some sources said that inventory levels are unlikely to change, given the status quo outlook due to stable but lackluster demand.

"I don’t think anyone has a lot of inventory," an East Coast flat-rolled distributor source said. "We’re okay busy, not great busy. We’re collecting our increases, but definitely not all of it. Competition is hard."

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