Service Center Intake, Shipments and Inventory through December 2016

In December total carbon steel intake at 125,000 t/d was 8,400 tons more than shipments. This was the first month of intake surplus after three months of deficit. The deficit averaged 13,100 tons in the three months through November following an average surplus of 4,000 tons in the three months through August. Total sheet products had an intake surplus of 7,100 t/d in December fairly evenly spread between HRC, CRC and coated products.

Total service center carbon steel shipments decreased by 17,600 tons on a per day basis from 134,200 in November to 116,600 in December, a decrease of 13.1 percent. In the eight years since and including 2009, December t/d shipments on average have been down by 13.2 percent. Therefore this December was exactly normal. 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 January shipments to be up by over 27 percent. In the SMU analysis we always consider year over year changes to eliminate seasonality. Table 1 shows the performance by product in December compared to the same month last year and also with the average t/d shipments for this and the two previous months of December. We then calculate the percent change between December 2016 and December 2015 and with the 3 year December average. Our intention is to provide an undistorted view of market direction.

Even though the decline in December shipments was normal compared to November the result was 3.0 percent less than December 2015 and 6.2 percent less than the average of the last three Decembers. Only coated sheet had a positive year over year gain.

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 on the same basis as for the other major product groups.

The fact that the single month y/y growth comparison is better than the three year comparison suggests that there is positive momentum meaning that the slowdown is slowing. 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 6 which show the y/y change in shipments. All four of these graphs show a y/y contraction though sheet is by far the best product group. 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 22 consecutive months of negative y/y growth. In December shipments of all products except coated sheet were down year over year. Sheet products in total were down by 1.9 percent. Figure 3 shows the shipment history since January 2014 of the three major sheet products.

Long product shipments from service centers are now lower than they were at the depths of the recession which considering the growth in construction takes some explaining. There may have (probably has) been a migration of buyers away from service centers as mills have had inventory available for sale and room in their schedules. Other possibilities are that an unknown quantity of shapes has morphed from hot rolled to cold formed and there has been some move from beams to hollow structural shapes in building frames. Then possibly the numbers are inaccurate because of gaps in company participation (Figure 4).

In previous reports we have combined sheet and plate as total flat rolled but these two categories have diverged so much in 2016 that it no longer makes sense to combine them. Sheet and plate products both had a good post-recession recovery. Both had some contraction in 2013 and growth in 2014 but since early 2015 they have diverged dramatically with plate performing much worse than sheet. In December y/y sheet was down by 1.9 and plate was down by 6.6 percent. Figures 5 and 6 show the 3MMA of t/d shipments and the y/y growth for each.

In 2006 and 2007, the mills and service centers were operating at maximum capacity, Figure 7 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.

Each year all products experience the December collapse and January pick up. The total of carbon steel products is now at 54.9 percent of the shipping rate that existed in 2006 and 2007, with structurals and bar at 46.8 percent and 40.8 percent respectively. Sheet is at 61.7 percent, plate at 55.2 percent and tubulars at 53.8 percent.

Inventories

December closed with months on hand (MoH) of 2.76 for all carbon steel products, which was up from 2.33 at the end of both October and November. All products except structurals and coated sheet had a decrease in MoH year over year with tubulars down by 21.7 percent and HRC down by 22.0 percent. 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 month end inventory and months on hand since January 2008 for total sheet products.

Total inventory tonnage of sheet products has been in decline for over a year. Figure 10 shows the change in inventory monthly for the big 3 sheet products.

Compared to HR, the monthly change in inventory tonnages of CR and coated have been quite small for the last 17 months. HR inventory experienced an abrupt negative shift in September of this year and picked back up in December.

SMU Comment: In Figures 2, 4, 5 and 6, the white lines show t/d shipments. There was a decline in shipments for carbon steel products in total in 2015 but this year the decline has slowed. 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 December 2014, declined through December 2015 and rose through August this year before declining abruptly in October. For flat rolled the MSCI and AISI data were in reasonable agreement with one another until September when the MSCI did not show the same decline. Note: this supply data is two months behind the MSCI information because of a computer virus that hit our files this month.

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.