NEW YORK Business conditions and demand appear to be looking up for U.S. and Canadian steel service centers, buy- and sell-side sources said, but a number of market participants said winter weather that has affected much of the United States has hurt shipping levels and will likely continue to do so.
"The weather has really crippled transportation. I cant get things out and I cant get things in. Ive had to buy tons just to fill in last week," one manufacturing source said. "Demand wise, Im not hearing people talk about the sky falling. I think well pull out of this, and everything Im hearing on the end markets is that this year will be better and that the second half will blow up."
Despite challenging winter conditions, January activity looked "decent," Morgan Stanley & Co. LLC analyst Evan Kurtz said in a research note.
"January service center data point to seasonally rebounding activity," he wrote, noting that shipments rose strongly sequentially but were below the seasonal average.
However, absolute inventories are lower year on year, Kurtz said. "Results were likely negatively impacted by extremely cold winter weather, which could continue to depress shipments in February," he added.
Steel inventories held by U.S. service centers increased 2.2 percent month on month to 8.55 million tons (2.3 months supply at current shipping rates) in January, while Canadian steel inventories edged up 3.3 percent to 1.41 million tons (2.8 months supply) in the same comparison, according to the latest Metals Service Center Institute (MSCI).
By product group, U.S. flat-rolled service center inventory volumes rose 5.4 percent to 5.25 million tons (2.3 months supply), the highest level since February 2013, with shipments rising 1.4 percent to 2.37 million tons from 1.93 million tons in December.
Similarly, Canadian flat-rolled service center inventories rose 4.7 percent to 756,900 tons (3.2 months supply) in January vs. 722,700 tons the previous month. Shipment levels rose 3.6 percent to 258,400 tons from 182,400 tons in December.
One Midwest flat-rolled service center source said there seemed to be a year-on-year pickup in demand.
"Demand in the last month and a half seems decent and a little better than last year," he said. "I think this year is looking better overall. Residential and nonresidential construction are picking up by a few percent. Were just matching inventory to demand."
Meanwhile, U.S. steel service center shipments as a whole jumped 23.7 percent to 3.65 million tons in January, and increased 42 percent in Canada to 495,300 tons.
Looking forward, some sources said inventory levels will likely remain lean amid concerns over raw material pricing.
"We believe absolutely inventory levels will continue to be managed cautiously, given ferrous scrap pricing softness emanating in February and likely continuing into March," Philip Gibbs, an analyst at Cleveland-based KeyBanc Capital Markets Inc., wrote in a research note.
However, others were more cautious, particularly as shorter lead times and global overcapacity might affect business levels.
"On the pricing front, weve seen slippage. Demand has been steady, but theres global oversupply," a second Midwest service center source said. "The only thing that will stop it is if people start getting some confidence and go out there and buy something."