Service Center Intake, Shipments and Inventory Through May 2017

In May, total carbon steel intake at 146,450 tons per day (t/d) was 2,100 tons less than shipments. This was the third month of deficit after three months of surplus. Total sheet products had an intake surplus of 1,100 tons following three successive months of deficit.

Total service center t/d carbon steel shipments decreased from 156,000 in April to 148,500 in May. April was the best month since May 2015. MSCI data is quite seasonal and we need to eliminate that effect before commenting in detail on an individual month’s result. Figure 1 demonstrates this seasonality and why comparing a month’s performance with the previous month can be misleading, particularly in January and the second half of the year. In the analysis described below, we report year-over-year changes to eliminate seasonality. Our intention is to provide an undistorted view of market direction.

Table 1 shows the performance by product in May compared to the same month last year, and also the average t/d shipments for this and the two previous months of May. We then calculate the percent change between May 2017 and May 2016 and the most recent three-year May average.

May this year was up by 2.3 percent from May 2016 but down by 1.0 percent from the three-year May average. The fact that the y/y growth comparison is better than the three-year comparison suggests that momentum is positive. Shipments of sheet, plate and long products were up from May last year, but tubulars were down. Figure 2 shows the long-term trend 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, 3, 4 and 5, which show the percentage y/y change in shipments.)

In January, on a 3MMA basis, there was positive y/y growth of 0.07 percent, which improved to 6.2 percent in April before declining slightly to positive 5.9 percent in May. These were the first positive y/y results since May 2015.

Figure 3 shows monthly long product shipments from service centers as a 3MMA with y/y change.

Growth has improved in each of the last eight months from negative 12.0 percent in September last year to positive 11.4 percent in May this year. February through May were the first positive results in two years. Sheet and plate have performed very differently in the last two years. Sheet and plate products both had a good post-recession recovery. Both had some contraction in 2013 and growth in 2014, but from early 2015 through the end of 2016 they diverged dramatically with plate performing much worse than sheet. This year plate has begun to close the gap a little. Figures 4 and 5 show the 3MMA of t/d shipments and the y/y growth for sheet and plate, respectively.

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.

Each year, all products experience the December collapse and January pickup. The total of carbon steel products is now at 69.9 percent of the shipping rate that existed in 2006 and 2007, with structurals and bar at 53.0 percent and 54.7 percent, respectively. Sheet is at 80.5 percent, plate at 67.6 percent and tubulars at 59.4 percent.

Inventories

March closed with months on hand (MoH) of 1.94 for all carbon steel products, which was the lowest level in 13 years (since May 2004). April increased to 2.28 and May declined once again to 2.05. This calculation is misleading because it is based on total shipments for the month. Therefore it is highly influenced by the number of shipping days. The March MoH was so low because shipping days were at the maximum. Compared to May last year, MoH in total were down by 6.4 percent led by pipe and tube, which declined by 20.2 percent, and sheet products, which declined by 6.5 percent. Shipping days in May last year were 21, compared with 22 in May this year. Plate and long products had an increase in MoH year over year. Figure 7 shows the MoH by product monthly since May 2009.

All products had a surge in months on hand in July 2016, driven not by an inventory volume increase but by a decrease in monthly shipments as a result of a small number of shipping days. By the same token, the low MoH in March was influenced by the high number of shipping days. Figure 8 shows both the month-end inventory and months on hand since May 2008 for total sheet products. The total inventory tonnage of sheet products has been in decline since the end of 2015.

SMU Comment: In Figures 2, 3, 4 and 5, the white lines show t/d shipments. So far in 2017 the MSCI results have been encouraging. There was a decline in shipments for total carbon steel products from mid-2014 through December last year, but the y/y comparison became increasingly positive in 2017. Figure 9 shows the total supply to the market of long and flat products based on AISI shipment and import data through April, which is the latest data available.

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. For flat rolled, the MSCI and AISI data have been in reasonable agreement with one another.

The SMU data base contains many more product specific charts than can be shown in this brief review. For each product, we have 10-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.