Steel Shipments Rise Sharply in March
Metals Service Center Inventories (MSCI) data was just released and showed the nicest trend we've seen since the start of the recession with a healthy pickup in shipments and a nominal increase in inventory stocks.
Buyers are using unusual discipline in maintaining control over stocks, although we give some of the credit to the continued lending tightness and difficulty in funding working capital increases.
Overall inventories rose a scant 1.4% from February as compared to a shipment increase of 5% sequentially, leaving months' supply dropping from 2.4 to an adjusted 2.2, a healthy drop that we find surprising given the seeming certainty steel buyers have that prices are going to continue to rise.
Overall months' supply was the lowest since March 2004 -- which was a price-accelerating catalyst back then, and in particular flat-rollled inventories at 1.9 months' on hand have only been lower a single time since the recession began, and a handful of times ever.
Overall shipment levels rose nearly 19% over the year-ago period, the largest single monthly increase since before the recession began, and as expected, there was particular strength in flat-rolled shipments (up some 26% from last year) and bar (up 21% from year-ago). The strength in both products reflects the improvements in the consumer durables market, particularly automotive (where most of the uptick in bar is coming from SBQ in our belief).
Weakness was unsurprising in the beam market, where shipments rose a nice 8% from February, but were down 3% from year-ago.
Inventory tonnage actually declined 2% for pipe and tube, and 3% for plate, while bar and beam tonnage were unchanged. Flat-rolled was the major gainer in the month, rising by a still-low 1%.
Outlook
We continue to believe that steel prices will trend up through the remainder of the year, and expect inventories to rise in tandem.
Limited availability of flat-rolled should keep a lid on speculation, although we are concerned that the tightness in this market in particular is driving a greater share of imported material coming into the country. As global pricing continues to outpace domestic, these prices are driving increases in our market.
In our view a smart strategy for the domestic producers would be to put a lid on price increases in order to squash the limited speculative import buying -- at higher prices -- that's going on, so we'd expect a flattening of prices in the coming months before increases start again later in the summer.
Background
MSCI service center inventories came in at 6.49 million tons (mt) this morning, up 1.4% from 6.48 mt in February, a slowdown in growth over February's tonnage increase (3.6%) and a far smaller percentage change than the shipping rate, which rose by 5% from the prior month (adjusted for February's 20 days and March's 23 days).
On a total month-to-month basis, shipments rose 20%. For the year-on-year comparison, the adjusted month increase was a whopping 18.6%, and the unadjusted March comparison (year ago March had 22 business days) was 24%.
Overall reported months' supply came in at two months' on hand, a meaningful drop from the reported 2.4 months' in February, although adjusting out the day count, the adjusted result would be closer to 2.2 months' on hand.
For beams, months' end inventory showed a nominal 0.2% increase month to month, with months' supply dropping to 2.3 months' on hand, on the back of an 8.3% pickup in shipments from February although shipments dropped 2.8% from the year-ago period.
For flat-rolled months' end inventory rose by 0.9%, while months' supply dropped from 2.2 to 1.9 months' on hand. Average daily shipments rose 4.4% from February, and a whopping 26.2% from the year ago period.
Plate months' end inventory dropped 3% from February, and months' supply dropped from 2.9 months to 2.3 months on hand. Shipments rose 3.9% from February, although were unchanged from year-ago March levels.
Bar inventory was virtually unchanged from February, up less than 0.1%, while months' supply dropped from 2.7 to 2.3 months' on hand. Shipments rose 3.3% sequentially and 21% from the year-ago level.
For pipe and tube, ending inventory for March was actually down 2% from February, leaving months' supply dropping from 2.8 to 2.3 months' on hand. Shipments rose 4.4% sequentially and 10.6% year over year.
Michelle Galanter Applebaum spent more than 20 years as a managing director at Salomon Brothers in New York and was the No. 1-rated steel analyst from 1988-2003, according to Institutional Investor magazine. In 2003, Ms. Applebaum formed Steel Market Intelligence, a 5-person Chicago-based equity research boutique providing advisory services to institutional investors. In addition to publishing 10-15 reports/week, Ms. Applebaum sponsors numerous CEO-level meetings for her investor clients during the year. She is regularly quoted on Bloomberg, Dow Jones, The New York Times and makes frequent appearances on CNBC and other news programs. Ms. Applebaum lives near Chicago with her husband, visiting children and 2 dogs.