Although steel dominates the business of most service centers in North America, a recent AMM survey of the top revenue generators shows that many distributors are still buying, fabricating and selling a diverse group of metals. Slightly more than two-thirds of service centers polled this summer said that stainless steel, aluminum, copper and brass accounted for at least some of their business, while the remaining third either did not respond to the question or dealt nearly exclusively in steel products.
Distributor shipments of both steel and aluminum rose in July, according to the latest data from the Metals Service Center Institute (MSCI).
U.S. and Canadian service center steel shipments of 3.92 million tons in July were up 4.4 percent from 3.76 million tons in the same month last year, putting year-to-date shipments at 27.95 million tons, 4.1 percent below 29.15 million tons in the first seven months of last year. Service centers continue to buy steel on an as-needed basis due to squeezed margins and changes on the supply side, and U.S. service center inventories of 7.84 million tons at the end of July (2.3 months supply at then-current shipping levels) were 12.2 percent below 8.93 million tons (2.7 months supply) a year earlier, while Canadian inventories fell 10.5 percent to 1.46 million tons (3.2 months supply) from 1.63 million tons (3.5 months supply) in the same comparison.
One potential bright spot is on the flat-rolled side, where market players said low inventory levels and recent supply disruptions 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. 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 at the service center level also has been increasingly tough, causing some to reconsider loading up on extra steel.
I dont think the higher pricing is going to hold. Our books arent 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 elses business. If I could, I would cut my inventory levels by half because selling prices are getting so volatile.
Of those distributors in the AMM survey who said that aluminum products were part of their business, 69 percent said they accounted for less than 15 percent of overall revenue, 14 percent said the metal accounted for between 15 and 30 percent of their business and 17 percent said they accounted for more than 30 percent.
A service center source cited a litany of problems he said were still dogging the aluminum distribution sector and unlikely to be resolved in the near term: the impact of budget sequestration in the United States, low prices for aluminum on the London Metal Exchange, and mills becoming more aggressive about taking end-user business that traditionally has been handled through distribution channels.
Still, North American service centers are hoping for better times in the second half of 2013 and into 2014. U.S. and Canadian service center aluminum shipments of 141,000 tons in July were up 5.1 percent from 134,200 tons in the same month last year, putting year-to-date shipments at 959,900 tons, 5 percent below 1.01 million tons in the first seven months of last year. U.S. service center inventories of 367,400 tons at the end of July (2.9 months supply) were 5.2 percent below 387,600 tons (3.2 months supply) a year earlier, while Canadian inventories fell 7.2 percent to 36,200 tons (2.9 months supply) from 39,000 tons (3.1 months supply) in the same comparison.
Im awfully glad the second quarter is behind us. While I dont have great expectations for the third quarter, out of the gate Im pleased, another service center source said. Increased orders were coming in from a range of sectors, including building and construction, aerospace and marine, he said, but he questioned whether the uptick in demand seen by his company was sustainable or a temporary blip.
Of those distributors in the AMM survey who said that copper and brass were part of their business, 97 percent said they accounted for less than 15 percent of overall revenue, while 3 percent said the metal accounted for between 15 and 30 percent of their business.
Copper and brass service center sources said lead times remain short in the United States due to slow spot business activity amid some oversupply. Lead times from mills to service centers for medium-gauge products remain at one to six weeks, while light-gauge products such as copper sheet and coil have lead times of between three and eight weeks.
In general, I dont think lead times will lengthen, a service center source said, adding that there was no good reason why lead times were so short. Business has been slow, he said.
Other sources blamed the slowdown on summertime sluggishness as well as customer speculation about where the market will stand.
Finally, of those distributors in the AMM survey who said that stainless steel products were part of their business, 76 percent said they accounted for less than 15 percent of overall revenue, 19 percent said the metal accounted for between 15 and 30 percent of their business and 5 percent said they accounted for more than 30 percent.