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Energy, distributors down while auto still helps out

Keywords: Tags  Energy, OCTG, oil, gas, service centers, MSCI, automotive, GM?

Steel production, sales and prices have not had a good run of it for nearly two years now, as the sector is feeling woes all along the supply chain. Three big factors–two bad, one good–have come to define the issue of late.

First, the energy sector, which was once seen as a savior for the industry, has fallen on hard time since the summer of 2014. Falling energy prices have have continued to hamper markets through the first quarter of 2016, as benchmark crude oil prices reached lows to start the year not seen since early in the century. At the same time, the U.S. rig count fell under the 600-rig total in early February, a development that creates more wirries for steel tube and pipe demand.

Secondly, distributors have seen a lot of challenges, especially during 2015. In December service center shipments fell, taking 2015’s numbers down with them, according to data from the Metals Service Center Institute (MSCI).

For the year as a whole, U.S. service center steel shipments fell 7.5 percent to 39.86 million tons from 43.12 million tons. That followed a 2014 in which U.S. steel shipments were 4.2 percent higher than 2013, according to the MSCI.

And U.S. service centers shipped 4.1 million tons of carbon plate in 2015, down 6.8 percent from 4.4 million tons in 2014, according to MSCI figures. The declines became more pronounced later in 2015, with domestic service centers shipping only 260,300 tons of plate in December 2015, off 24.1 percent from 343,100 in December 2014.

Survival for metal service centers in 2016 may depend heavily on flexibility and innovation, traits which will be needed to combat a number of challenges on economic technological fronts that might transform the industry, according to the MSCI.

Meanwhile, end markets are expected to present a mixed bag of obstacles and opportunities. The automotive and aerospace industries both had exceptionally strong results in 2015, and will likely continue to be robust in 2016.

Finally, the automotive sector rode to the rescue in 2014 and 2015 as other potential roads to profit began clogging up.

General Motors Co. believes that auto sales in the United States are merely “plateauing,” disputing claims made by some analysts that the sector is in for an imminent downturn.

“The bears argue that the industry has peaked and is ready to roll over. They often cite the fact that the U.S. auto industry is in its seventh year of expansion, margins are as good as they get, and a recession is right around the corner,” GM executive vice president and chief financial officer Chuck Stevens said during a February earnings call. “On the other hand, a number of people, including GM, believe that the industry is plateauing, with many years of strong performance ahead.”

The metals sector hopes so as well.

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