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Gov't turmoil clouds aluminum centers' views

Keywords: Tags  Metals Service Center Institute, MSCI, aluminum, shipments, inventories, budget crisis, debt ceiling, automotive defense

CHICAGO — Service centers’ aluminum shipments were on a split path in September, with political brinkmanship in Washington and worries about a potential U.S. debt default further clouding the market, according to sources.

"I hate to sound like Malcolm X, but the chickens will come home to roost," one service center source said. "We don’t need to be manufacturing a crisis just as we’re finally getting over a major financial shock."

Despite an aerospace sector glut, the service center source said his company has seen strong growth in plate due to general engineering demand. Extrusion and cold-finished markets have been "holding their own" while sheet has seen "less slippage" than in previous years, he said.

U.S. service centers’ aluminum shipments totaled 121,700 tons in September, up 8.2 percent from 112,500 tons a year earlier, representing the strongest year-on-year shipment gains to date, according to the latest Metals Service Center Institute (MSCI) data. However, the tally was down 8 percent from August.

Inventories fell 3.7 percent to 362,700 tons (3 months’ supply) in September from 376,600 tons (3.3 months’ supply) a year earlier and were also slightly below August’s 365,000 tons.

Shipments for the first nine months of the year, at roughly 1.12 million tons, were still 3.4 percent below the first nine months of last year.

Canadian service centers shipped 12,400 tons of aluminum products in September, up 1.1 percent from 12,300 tons a year earlier but down slightly from 12,700 tons in August. Inventories dropped 11.1 percent to 35,000 tons (2.8 months’ supply) from 39,400 tons (2.9 months’ supply) in September 2012. Canadian shipments for the first nine months of the year totaled 117,400 tons, down 3.4 percent from 121,500 tons in the same period last year.

The service center source also worried that consumer spending could take a hit from chronic uncertainty resulting from political turmoil in the United States, as well as the direct and indirect impact of U.S. government furloughs combined with still-high unemployment rates.

"I’m hoping we’ll still be able to have a constructive result. ... But what Washington does really could collapse the world economy," he said.

"The problem is even if you get the government going again, who feels confident that we are going to have long-term agreement on anything? I certainly don’t," according to a second service center source, whose company is more directly focused on government business, including military contracts. "You can say it’s Washington to be politically correct. But ... it’s like they don’t understand what’s at stake."

His business has taken "a real punch to the gut" from a combination of sequestration and the current budget crisis, he said.

While most Defense Department employees haven’t been furloughed, other government employees, contractors or subcontractors have been impacted, the second service center source said. That means that orders requiring inspection before shipment aren’t being shipped and are instead backing up on the floor, he added.

"That not only affects our billings but our trucking, our contract carriers ... And the dominoes just keep getting knocked over," he said. "It’s not just government orders. There is a whole line of other parties that are impacted by this."

Even outside of government business, service centers are trading among themselves instead of building inventories because of the uncertain outlook, he said.

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