The Steel Market Update (SMU) Steel Buyers Sentiment Index remained in optimistic territory this week as our index was measured at +36. This is two points lower than the +38 measured during the middle of April and is thirteen points higher than one year ago when our Sentiment Index was reported at +23. Our latest reading is two points higher than the lowest reading of the year (+34) achieved at the beginning of April.

Much like steel prices, after peaking in the middle of January 2012 at +49 the SMU Steel Buyers Sentiment Index has been slowly drifting lower although remaining well within the optimistic range.

Construction Holding the Index Back from Moving Higher

During our survey process those involved in the construction industries were quick to voice their opinions regarding business conditions in their segment of the steel industry. An east coast manufacturing company associated with the building industry told us during the survey process, “Building seems to be slowing as compared to 4Q11 and 1Q13. We have come under increased margin pressure.”

A second manufacturing company located in the southeastern U.S. reported, “April did not have the normal spring surge [in business].” This could be due to the warmer than normal weather conditions across most of the country this year which allowed construction projects to be started earlier than normal taking away from the “spring surge” noted by this manufacturing company.

A Midwest steel service center/distributor provided their outlook with the following comment, “Not feeling good about this market, we have little exposure to the automotive market and that seems where the momentum is right now.”

A manufacturing company associated with the agricultural segment of the economy told us during the survey process, “We don't understand the reasons for our sudden slowdown in new orders in the industry.”

We received an email from a Midwest service center that provided some insight into how they are viewing the market, “Business is still quiet. I mean, we are steadily busy, but certainly a lot of side line behavior as people watch what pricing is doing. I would say that our customer’s “production” is steady and continuing with confidence. But “demand” (as defined by purchase orders) is down. So which is more telling in an environment with short lead times and market uncertainty… I am not freaking out based on the above. But certainly not as exciting as it was in 1Q.”

Manufacturers Reporting Demand Growth – Service Centers Order Flows Stable to Lower

As a group the manufacturers who participated in our most recent survey reported demand as either stable (59%) or growing (29%) with only a small fraction reporting demand as shrinking (12%). On the service center/distribution segment of the industry 85% of those responding to our survey reported their flow of orders as remaining stable as compared to one month ago with the balance (15%) reporting their order flow as shrinking compared to one month ago. None of the service centers responding to this week’s survey reported order flows as improving compared to one month ago.

SMU Future Sentiment Index

When asked about their perception as to how successful their company will be out into the future (3-6 months) those responding to our survey continued to be upbeat but not to the levels we had seen in the past. SMU measured Future Buyers Sentiment at +47, down 8 points from the middle of April and only 5 points higher than at the beginning of May 2011 when Future Sentiment was measured at +42.

About the SMU Steel Buyers Sentiment Index

SMU Buyers Sentiment Index is a measurement of the current attitude of buyers and sellers of flat rolled steel products in North America regarding how they feel about their company's opportunity for growth in today's market. It is a proprietary product developed by Steel Market Update for the North American steel industry.

Positive readings will run from + 10% to + 100% and the arrow will point to the right hand side of the meter located on the Home Page of our website indicating a positive or optimistic sentiment.

Negative readings will run from -10% to -100% and the arrow will point to the left hand side of the meter on our website indicating negative or pessimistic sentiment.

A reading of “0” (+/- 10%) indicates a neutral sentiment (or slightly optimistic or pessimistic) which is most likely an indicator of a shift occurring in the marketplace.

Readings are developed through Steel Market Update market surveys which are conducted twice per month. We display the index reading on a meter on the Home Page of our website for all to enjoy.

Currently we send invitations to approximately 700 North American companies to participate in our survey. Our normal response rate is approximately 130-200 companies. Of those responding approximately 48% are manufacturing companies, 49% are service centers/distributors and the balance is made up of steel mills, trading companies and toll processors involved in the steel business.

Steel Market Update does canvass those being invited to participate in order to confirm their active participation in the flat rolled steel business. Our list is updated at least once per month and we are adding new companies on a continuous basis.