Steel Market Update (SMU) has been speaking to a number of service centers regarding their spot sales and especially those sales which are made between service centers or brokers. A number of service centers have been commenting about their spot warehouse business being off over the past three months.
Lisa Goldenberg of Delaware Steel told Steel Market Update that even though demand is “OK” things should feel better and it is difficult to put your finger on exactly what is happening. “Why aren’t we feeling it?” she asked. “If manufacturing numbers are OK why aren’t we feeling the benefit?”
Within the secondary steel business she told us, “It’s really quiet. Nothing can be cheap enough and we find everyone is waiting. Demand is not bad – there just is a lot of steel out there.” Ms. Goldenberg then went on to tell us there is a pricing squeeze where there is less room in the middle for the typical warehouse to warehouse or warehouse to dealer sale.
SMU also spoke with North Shore Steel owner Greg Gross who told us their business during the 1st quarter 2013 was down compared to a typical business pattern during the 1st quarter of any previous year. He went on to tell SMU, “The only change is we are really the same… kind of running in place as our producers are trying to force activity, through base price spot market raises, and a short term wedge of support by a spike in scrap for March… but these are collectively met with a yawn, shrug, and a continued wait and see indecisive market, along with the very likely drop off in scrap value in April… no momentum, no consumer confidence, a do nothing government. It is pretty tough to be bullish in this environment even though the reality of a reasonably sound economic base has been re-established albeit slow… but still forward… it just plain old doesn’t feel good.”
One of our secondary warehouse sources told us that they recently had purchased a few thousand tons of high-quality automotive excess (secondary) material. We were told in a normal market this type of product would be gone “within a few weeks.” However, we were told the warehouse is still sitting on the material and they are “shocked” that it has not moved.
A Midwest based warehouse told us that there is plenty of secondary available due to the imbalance in the supply demand equation. He told us stability in pricing has had a negative impact on spot sales, “…spot sales between service centers… in an up and down market people have reasons to move inventory other than customer demand.” He went on to say, “But mostly I think the capacity utilization reduction of the past three years has caught up and the inventory correction to the “new normal” has finally corrected itself.”
SMU also spoke with a number of prime service centers who provided us with a mixed bag of responses. Two of the larger galvanized distributors told us their service center spot sales have been much slower so far this year than anticipated.
A prime hot rolled service center located in the Upper Midwest told us, “We actually sell quite a bit to other service centers and I can tell you that business has not dried up whatsoever. What I can say is that service centers who buy direct from mills can get their steel pretty quickly so no need for them to buy out from other service centers. The inventory level we carry is down as again, with lead times short, there is no need to carry extra inventory.”
A prime service center out of the south told us their spot business is down 15 percent so far this year. The steel buyer told SMU that even so, “Most service centers are still focused on lean inventory and high turns so holes do still develop and trade between us remains stable.”
SMU will continue to follow this subject. Our next steel survey will have a couple of questions for the service centers regarding spot sales between them and what impact price stability and inventory levels at “new normal” is having on their businesses.
John PackardRead more from John Packard
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