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Distributing risks, benefits can be a tricky business

Keywords: Tags  service centers, aluminum, steel, aluminum shipments, steel shipments, Steel Buyers Index, John Ambrosia

As we point out in the introduction to the Service Center supplement included with this month’s magazine, the past 12 months have been mostly good for metals distributors. Good, but not great.

First, the good: Steel and aluminum shipments posted year-on-year increases in each month through June. While not robust, the market also at least seems to have stabilized for the long term.

Now, the not great: While the monthly year-on-year shipment increases were high some months--March, April and June--the increases were low or nearly nonexistent in the other months. Inventories did not increase in every month. Steel prices have been a bit volatile of late, creating some uncertainty for distributors.

What all of this means is that service centers are under considerable pressure as they attempt to balance the needs of customers against the realities of profit margins. Service centers have not escaped the flat economic results that other sectors of the steel and ferrous scrap industries are experiencing.

AMM’s annual survey of service center revenues and business planning shows that although revenues are up slightly over last year (as 2012 was over 2011), the more significant growth rates in 2010 and 2011--emerging from the Great Recession--do not appear likely to be repeated in the near term.

A review of recent monthly steel buyers index results shows that longer-term levels of inventory on hand have been volatile so far this year, with most service center operators considering those levels to be just about current economic conditions. Inventory is one of the few ways service centers have of controlling at least a corner of their own destiny.

Additionally, despite the continuing economic uncertainty and an often-volatile market for steel products, most survey respondents said they had added facilities and upgraded equipment during the past three years and plan to grow over the next three years through mergers and acquisitions, greenfield construction or expansion at existing operations. Distributors also said they hope expansions will improve service capabilities and geographic scope as well as broaden their product lines.

So some form of forward movement on the part of distributors seems to be the best balm for the challenges that the overall economy--and, more specifically, the metals sector--present to the service center universe. It is in these choices that the make-or-break point of business is defined.

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