Steel Prices and Demand Slowly Improving
Jan / 23 / 2010 -
Steel Prices and Demand Slowly Improving
Steel Demand & Prices are improving - the results of the Steel Market Update market survey
The results of the Steel Market Update Market Survey which we conducted earlier this week are showing continued signs of improvement in demand within both the service center and manufacturing sectors of the flat rolled steel business.
Better Demand – Better Steel Order Book – But Cautious
Many of the respondents took the time to point out demand growth is modest (or slight) and still in the early stages. This is how one U.S. service center explained their business, “just starting to see modest improvement; OEM's [original equipment manufacturers] are seeing slightly more activity.” While a service center in Canada was more reserved in their comments, “We have seen an increase in quotes, not necessarily an increase in orders.” A West Coast distributor was both upbeat and cautious in their remarks, “The last 6-weeks of 2009 nothing was happening. Commencing with Monday morning 01-04-10 the activity is much improved. We'll see how long this lasts.”
Twenty-six percent (26%) of our respondents reported demand as “growing” while fourteen percent (14%) felt demand was “declining.” Many of those in the declining column are associated with residential and/or commercial construction.
A clear sign of life came from a pipe and tube manufacturer who told SMU during the survey process they had increased steel purchases “just to keep up with current order increase but not for the build up of any inventory.”
The tubing manufacturer’s comments confirmed a recent email conversation we had with a large pipe and tube service center: “We are seeing things pick up. In December bookings did not go down nearly as much as they normally do (comparing to November) In fact they continued to increase until the 17th of December -- never had that happen in all of my years -- I am not talking a large amount but the increase was evident. Since the first of the year, we are seeing bookings increase every day. We just finished reading our manager’s reports and they all had positive comments -- first time in over a year -- In short, we are seeing a slow gradual increase and it sure looks good compared to the past year.”
During our Market Survey we asked those surveyed what they anticipate for demand for their product(s) over the next three months. The response was clearly upbeat as 45% of the respondents believe the demand increase will be at least 10% or greater. Another 45% responded demand would remain stable at today’s levels. This left a relatively small minority who were projecting a decline in demand for their business.
How Much is Real and How Much is Speculation?
Our questions about demand, inventory and pricing revealed the need to protect inventory costs and a penchant by some to speculate – buying inventory in late 4th Quarter 2009 or early this year in order to off-set anticipated increases by the domestic mills. The need to speculate was brought to our attention in some of the comments made during the survey process – and were re-enforced during conversations SMU had with steel buyers over the past few days.
A manufacturer told us in the comment section in this week’s survey, “I am going to see if I can tie up steel to cover demand for May and June. We would not bring the steel in until we needed it. I am just trying to expand on my current buy.”
We heard from many service centers who, like the one about to be quoted, realized prices were at, or near, bottom in December and took advantage of the opportunity, “We booked heavy at the end of the 4th quarter believing that the pricing had bottomed” while others termed their buys in December and January as a “hedge” or a way to “mitigate” the impact of price increases.
SMU spoke with a steel buyer who met with a number of their steel suppliers this week. The question this buyer kept asking the steel mills was “why roll demand forward?” It is typical when the domestic mills are attempting to move prices higher to offer customers the opportunity to book at the old numbers before the new ones go into affect. Essentially, what the mills are asking buyers to do is to pull the following months orders up into the previous month in order to protect against price increases. The ultimate affect is already being seen – inventories are growing at both the manufacturer and service centers which will ultimately result in a need to destock.
SMU compared the results of our questions of service centers and manufacturers (independent of one another) regarding their need to rebuild inventory. In the latest survey both manufacturers and service centers had a larger percentage of companies building than reducing inventory. We actually saw for the first time manufacturers taking the lead (24% to 20%) over service centers to rebuild inventories.
We found the manufacturers are being proactive to prevent “bottlenecks” and build some stability in their pricing. Here are a few quotes taken from this week’s survey from various manufacturing companies:
“Stocked up with Q2 orders to allow steel market time to stabilize.”
“We have increased some just for spring, but only to avoid some of the typical bottlenecks at the mills not to hedge pricing. Demand still not that strong.”
“Purchased heavily in November, covered for first half of 2010.”
The answer to our speculation question is we do not know – and this is one of the reasons we continue to focus very carefully on mill lead times as speculators tend to buy in spurts and most speculation would have occurred prior to March’s order book.
On a Scale of 1 – 10
Our respondents continue their slightly negative feelings toward existing business conditions as they rated today’s market a 4.41 out of a possible 10 (1 being the worst and 10 the best).
SMU has posted a number of the graphs produced from this week’s Market Survey on our website. You can find them at www.steelmarketupdate.com in the Media Center section of the site. Click the “View Gallery” link next to Files to find both this week and the graphs produced two weeks ago.
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