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Steel inventories expected to remain lean

Keywords: Tags  steel, MSCI, Metals Service Center Institute, Luke Folta, Chuck Bradford, Evan Kurtz, steel shipments, Catherine Ngai

NEW YORK — U.S. and Canadian service centers’ steel shipments rose in October, but inventory levels were mixed, Metals Service Center Institute (MSCI) data show.

While steel shipments increased in both countries, U.S. service centers reported a slight rise in inventories but a drop in months on hand while Canadian service centers saw a drop in both inventories and months on hand.

The steel market has seen steady but lackluster demand across most major product groups recently, and some analysts and market sources expect inventory levels to remain lean moving forward.

"We continue to expect a less-than-normal year-end destock, given firm/increasing flat-rolled pricing trends of late and relatively low flat-rolled months on hand," Luke Folta, an analyst at New-York based Jefferies LLC, said in a research note. "There are several mixed end markets currently, but overall more positive than negative demand, and we continue to look for signs of improvement (in) the nonresidential cycle as well as improved trends for areas of heavy equipment."

While "demand is fine and very steady," there remains a lot of "cautiousness" in the market, one Midwest flat-rolled service center source said.

Charles Bradford, an analyst at New York-based Bradford Research Inc., pointed out that there were more shipping days in October—23, vs. 20 in September—which would lead to higher numbers overall.

"That kind of mathematics affects inventory levels and supply," Bradford told AMM. "I do agree that inventories are low, and I don’t know how people are going to react moving forward, particularly when you enter a period when weather gets bad, demand falls, but at the same time scrap prices go up and some people increase their inventories just to protect themselves from that. I don’t think we’ll see a restocking until the New Year."

Some sources said low inventory levels, however, have strengthened the flat-rolled market, particularly in light of recent increases on both the sheet and plate side, which traditionally would see a softening at year-end. Others said certain end markets need to pick up before a material increase in inventory occurs and market confidence improves.

"The lean inventory situation has provided price support heading into next year, something we expect to continue," Evan L. Kurtz, an analyst at Morgan Stanley & Co. LLC, New York, said in a note. "The structural market remains a weak spot as we wait for nonresidential construction to pick up meaningfully."

U.S. service centers shipped 3.79 million tons of steel in October, a 12.2-percent increase from 3.38 million tons the previous month and 8 percent higher than 3.51 million tons a year earlier, but daily shipments of 164,900 tons last month were down 2.4 percent from 169,000 tons per day in September, according to the MSCI data.

Inventories held by U.S. service centers totaled 8.06 million tons (2.1 months’ supply at current shipping rates) at the end of October, up 0.4 percent from 8.03 million tons (2.4 months’ supply) a month earlier but down 4.6 percent from 8.45 million tons (2.4 months’ supply) a year ago.

Canadian service centers’ steel shipments totaled 531,900 tons in October, up 12 percent from 474,900 tons the previous month and 1.6 percent ahead of 523,400 tons a year ago, while daily shipments of 24,200 tons increased 2.1 percent from 23,700 tons per day in September.

Canadian inventories of 1.25 million tons (2.3 months’ supply) at the end of October were down 4 percent from 1.3 million tons (2.7 months’ supply) the previous month and 24.6 percent below 1.65 million tons (3.2 months’ supply) in October last year.

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