Service Center Shipments/Inventories for August

Intake and shipments; In August total carbon steel intake at 139,800 tons / day (t / d) was 140 tons more than shipments. This was the third month of intake surplus after eight consecutive months of deficit. The deficit averaged 14,300 tons in the four months through January, shrank to 4,300 tons in the four months through May and went into surplus in June, July and August when the total three month t / d  surplus was almost 12,000 tons. This seems to indicate a positive improvement in sentiment this year. Total sheet products had an intake surplus of 2,000 t / d in August with HRC having a surplus of 3,000 t / d and CRC and coated products being in deficit by 860 and 180 t / d respectively.

Total service center carbon steel shipments increased by 900 tons on a per day basis from 138,800 in July to 139,700 in August, an increase of 0.6%. In the eight years since and including 2009, August shipments on average on a t / d basis have been up by 3.2% from July. Therefore this August was disappointing. This observation is intended to give a long term perspective because MSCI data is quite seasonal and we need to get past that before commenting in detail on current results. Figure 1 demonstrates this seasonality and why comparing a month’s performance with the previous month is usually misleading.

History tells us that we can expect t / d shipments to increase again in September before experiencing a progressive decline in the 4th quarter. In the SMU analysis we always consider year over year changes to eliminate seasonality. Table 1 shows the performance by product in August compared to the same month last year and also with the average t / d shipments for this and the two previous months of August. We then calculate the % change between August 2016 and August 2015 and with the 3 year August average. Our intention is to provide an undistorted view of market direction.

In December 2015 the MSCI expanded their data to include sub sets of the major product groups and provided two years of data for 2014 and 2015. Table 1 shows the breakdown of sheet products into hot rolled, cold rolled and coated products. Compared to August 2015, intake was down by 7.8% for all carbon steel products and down for all individual products except coated sheet.

Shipments of all carbon steel products in August on a t / d basis were down by 7.2% y / y and were 8.1% less than the average August shipments for 2016, 2015 and 2014. The fact that the single month y / y growth comparison is slightly better than the three year comparison suggests that there is slight positive momentum. Figure 2 shows the long term trends of daily carbon steel shipments since 2000 as three month moving averages. (In our opinion the quickest way to size up the market is the brown bars in Figures 2, 4, 5 and 7 which show the y / y change in shipments. All four of these graphs show a y / y contraction.) Total daily shipments had a post recessionary high of 173,300 in June 2014 and as shown by the brown bars in Figure 2 have had 18 consecutive months of negative y / y growth. In August shipments of all products except coated sheet were down year over year. Sheet products in total were down by 3.7% with declines in HR of 10.0%, in CR of 4.9% and coated products up by 11.5%.

Figure 3 shows the historical shipping rate of the three major sheet products since January 2014. Coated products enjoyed the highest shipments in June since the MSCI developed this detail in January 2014 and August was the 2nd highest month. Hot rolled has declined this year and cold rolled has been flat.

 
There continues to be a wide difference between the performances of flat rolled, (sheet + plate) and long products, (structurals + bar) at the service center level. Long product shipments from service centers are now lower than they were at the depths of the recession which considering the growth in construction doesn’t make sense. There may have, (probably has) been a migration of buyers away from service centers as mills have had their own inventory for sale and room in their schedules. Another possibility is that an unknown quantity of shapes has morphed from hot rolled to cold formed driven by the advantageous price of hot rolled. Then possibly the numbers are just wrong because of gaps in company participation, (Figure 4).

Flat rolled has had a much better recovery since mid-2009 and had positive y / y growth for 18 straight months through January 2015. In February 2015 growth slowed to zero and has been negative ever since, (Figure 5).

In 2006 and 2007, the mills and service centers were operating at maximum capacity. Figure 6 takes the shipments by product since that time frame and indexes them to the average for 2006 and 2007 in order to measure the extent to which service center shipments of each product have recovered. All products experienced the normal end of year collapse and January pick up. The total of carbon steel products is now at 65.8% of the shipping rate that existed in 2006 and 2007, with structurals and bar at 51.8% and 44.8% respectively. Sheet is at 76.4%, plate at 61.4% and tubulars at 60.1%.  

Since most of our readers are sheet oriented, we have removed plate from Figure 5 to highlight the history of sheet products which are shown in Figure 7. Following the strong post-recession recovery, sheet products experienced 9 months of decline from October 2012 through June 2013. This was followed by 19 months of growth through December 2014 but January 2015 slipped back into negative territory at – 0.7% year over year and has been negative ever since though the contraction has slowed to 0.8% in June, 1.7% in July and 1.9% in August 2016.

Inventories; August closed with months on hand, (MoH) of 2.30 for all carbon steel products, down from 2.67 in July. All products except structurals and coated sheet had a double digit y / y decrease in MoH and tubulars were down by 28.4%. Figure 8 shows the MoH by product monthly since January 2009. All products had a surge in months on hand in July driven not by an inventory volume increase but by a decrease in monthly shipments as a result of a small number of shipping days.

Figure 9 shows both the monthly inventory and months on hand since January 2008 for total sheet products. Total sheet inventory and MoH have been in overall decline since the beginning of 2015.

Figure 10 shows the change in inventory monthly for the big 3 sheet products.  Compared to HR, the monthly inventory changes of CR and coated have been quite small for the last 12 months. HR inventory experienced an abrupt negative shift in October and November last year. Since then the HR inventory level declined by about 12,000 tons / month through May then had positive growth in June, July and August.

SMU comment; in Figures 2, 4, 5 and 7, the white lines show t / d shipments. There was a decline in shipments for all major product groups in 2015 but this year the decline has slowed for all products. Figure 11 shows the total supply to the market of long and flat products based on AISI shipment and import data. Total supply of long products is much better than the MSCI report of service center shipments with a volume almost double the recessionary low point. Total supply of flat rolled products peaked in October 2014, declined through November 2015 and has risen since then though volumes are still depressed compared to late 2014. For flat rolled the MSCI and AISI data are in reasonable agreement with one another. Note: this supply data is one month behind the MSCI information.

The SMU data base contains many more product specific charts than can be shown in this brief review. For each product we have ten year charts for shipments, intake, inventory tonnage and months on hand. Some readers have requested these extra charts for a particular product and others are welcome to do so.