Service Centers

What Did SMU Forecast for Distributor Shipments & Inventories for June?

July 16, 2015

The Metal Service Center Institute (MSCI) will report June inventories and shipments on Friday of this week. The world is keenly interested in how much steel the distributors are holding on their floors and how June will compare not only to May’s totals but to June 2014 totals as well.

The real test, however, will be on the amount of flat rolled inventories still being held on service center floors and the number of month’s supply that will be reported. Anything less than a daily shipment rate on flat rolled of 110,000 tons per day will be a disappointment. We also believe the excessive inventories at the service centers should be down from 673,000 tons to 405,000 tons. We will explain that number in a moment.

The reason why everyone is excited to know the MSCI numbers have to do with future orders, mill lead times and ultimately price increases. The bigger the inventory number the bigger the headache for the domestic steel mills. Get inventories down around 2 months and, well Katie bar the door…

The rumor mill has flat rolled inventories at 2.4 months supply. This would be down from 2.7 months reported one month ago.

So, let’s talk about what Steel Market Update forecasted for the month of June. Every month we provide our Premium level members a detailed analysis of MSCI flat rolled shipments and inventories. We provide our views as to whether distributors’ inventories are in “apparent excess” or “deficit.” For a number of months service centers have been carrying excessive inventories to the tune of almost 700,000 tons. This is based on a proprietary formula which takes what we consider balanced inventories compared to the actual number produced by MSCI.

Without having seen the new numbers (which come out on Friday), one month ago SMU forecast June daily shipment rate on flat rolled would be 110,500 tons per day. There were 22 shipping days during the month of June. We predicted that the U.S. steel service centers would ship a total of 2,430,300 tons which would be almost 300,000 tons more than what shipped during the month of May.

We also predicted that the service centers would receive 100,000 tons of flat rolled steel per day into their facilities. The 100M per day number is 2,170 tons per day below the month of May and 8,125 tons per day fewer than what we saw in June of last year.

If both our shipment and receipt scenarios are close to correct, we should see service center excess inventories drop to about 405,000 net tons. We forecast a continuation of that inventory drop in July and August getting down to about +269,000 tons.

Now we wait for the numbers to be released to see how close we were to reality. Check in again on Sunday evening when we report our results.