SMU Premium Steel Survey Results

In our most recent survey 45 percent of the respondents were manufacturing companies, 39 percent steel service centers or wholesalers, 7 percent were trading companies, 4 percent each were steel mills and toll processors and 1 percent were suppliers to the industry (which tend to be either paint or chemical companies).

We found general demand still improving, albeit at a slower or less pronounced rate than what we saw at the beginning of May. During a conversation with a service center steel purchasing manager this morning, we learned that those associated with construction and agricultural markets were not enjoying the same levels of success as those associated with automotive, trucking or energy. We believe the construction markets are improving but muted as many construction projects are still in the early stages and not far enough along to utilize many of the flat rolled products (studs, mechanical contractors, etc.).

Interesting note: We saw 33 percent of the service centers reporting that their company exceeded business forecasts for the month of May. May was the second month in a row that service centers reported high levels exceeding forecast. During the prior month’s survey, 50 percent of the service centers reported exceeding forecast. Manufacturers saw more than three times as many reporting failing to meet forecast versus those that exceeded (7 percent).

Service centers reported their customers are releasing more steel than they did at this time last year. However, the early June survey was slightly less optimistic than what was reported in May (slide 19 on Power Point). If you look at the historical timeline, service centers are doing well as their customers are trending in the right direction.

Manufacturing companies are reporting demand for their products is improving–50 percent reported either demand was increasing marginally (45 percent) or substantially (5 percent). We think you will find it easy to follow the trend by reviewing slide #22.

Later in the survey results (slide #32 on our Power Point), 33 percent of service centers reported their manufacturing companies as increasing orders, down 9 percent from the beginning of May but 20 percent better than the beginning of March. Historically these results are quite impressive as the average has been closer to 15 percent up until the beginning of March (slide #33).

Inventories appear to still be balanced as the majority of both manufacturing and service centers were maintaining inventory levels. We are picking up a slight shift in the service centers as 25 percent reported their company was reducing inventories. We will need to watch this to see if the trend continues in the coming month.

Service center inventories came in at 2.15 months which is the lowest level we have seen since late 4th quarter 2013. We will need to watch this carefully as it is counter to our perception that foreign steel imports should be expanding the distributor inventory levels. A note about our process of collecting information–the vast majority of the service centers captured by our survey results are moderately sized and not the mega service centers. The last MSCI number was 2.1 months on a non-seasonally adjusted level (as of end of April).

The mill lead time history is also quite telling (slide #35). We are seeing the manufacturers reporting normal lead times when over the past couple of months lead times were extended or even highly extended. Service centers (#36) were split 50/50 on lead times as half reported them as extended and the other half normal.

The spread regarding foreign steel continues to be an issue for the domestic mills. Both the manufacturing companies and service centers reported 84 percent to 16 percent that the foreign prices justified buying foreign steel.

Fifty percent of manufacturers and 44 percent of service centers reported they were placing foreign orders. This is about double what it was one year ago (slide #43 & #44).

Also of concern to the domestic mills, and one of the reasons why Steel Market Update adjusted our Price Momentum Indicator to Lower yesterday, was the percentage of our respondents who reported that their foreign orders will cause them to reduce domestic steel purchases: 55 percent for service centers and 66 percent for manufacturing companies.

Our next survey will be conducted the week of June 16th.