“I have not heard anyone all that concerned about supply disruptions other than the industry media. It seems there is plenty of material to go around and anyone who took a position is hoping that there will be an interruption so that their inventory will become more profitable.” Ohio Valley Service Center
Earlier today, SMU was having a discussion with a service center executive who was, once again, reminding us that their inventories were high enough that they were looking for warehouse space to store the excess (although all the steel is technically sold on contracts). The need to buy spot inventory was limited and this executive surmised that their mill suppliers were having a tough time attracting new spot orders.
We decided to go out into the service center market and canvass as many distributors as possible during the course of the day in order to determine how they were positioning their inventories. During the process we picked up a number of comments that we think our readers will find interesting.
A southern service center with ties to the automotive industry told us regarding their inventory levels, “We’re staying steady at about 2.5 months. We do have a lot of open orders, so I’m expecting our inventory to climb a little in August/September. We bought a few extra months when the market was at the bottom.”
A Chicago area service center told us, “No doubt that customers have sensed an upward bias re prices—regardless of how much it may actually materialize. We had a strong booking and shipping month in June and July is going well so far. Shipments have been strong for several months but I do believe that recent bookings were driven in part by higher price prospects. I believe inventories will stay in the high two month range because of the prospect of a higher price hedge.”
They went on to say, “There has been very little chatter about the strike possibility from our customers and no purchasing activity based on that alone. A continued short mill lead time contributes to further influences our customers thinking re buildup thoughts.”
From the upper Midwest we heard, “Inventory seems to be right in line for most of our customers. As they do not believe prices will rise, they are not taking more than needed. On the other hand, we believe prices hit a low in June and we bought an extra month’s worth of steel.”
One large service center which sells mostly to contract customers told SMU that their sales and inventories were running “to plan.” They went on to share with us, “We did note that spot order activity is down, as there isn’t enough momentum to bring buyers to the table, certainly folks who have taken a hit aren’t ready to re-buy, perhaps they are sitting on some inventory in the hopes of recapturing some of their losses. I think we’ll come in at 2.5 months as the incentive is to de-stock if anything, given that you can still replace cheaply.”
From the east we heard, “Inventory is somewhat higher than usual. June and July shipments have been steady.”
Then we heard this from the Ohio Valley late this afternoon, “Material is readily available and the rumored and published price increases have not done anything to stall transactions. We are seeing the mills chase inquiries to close orders. We are seeing plenty of inventory being offered at, or below, published pricing from other larger warehouses and distributors. We are also seeing customers wait until the last second to place any orders waiting to see if pricing is going to move and not worried about availability of product. In fact many distributors that have taken positions with imported material are offering fire sales to move it further disrupting the possibility of price movement upwards.
I have not heard anyone all that concerned about supply disruptions other than the industry media. It seems there is plenty of material to go around and anyone who took a position is hoping that there will be an interruption so that their inventory will become more profitable.
We are steady in this new normal and have maintained a decent on hand inventory and a good backlog of availability from new suppliers. Our customers are steady in this new normal and have been at or exceeded our forecast for the first time in many months over these past two months. I do not consider this a trend but more of a seasonal flutter and we are trying to take advantage while we can. That being said I have not taken a stand on building inventory but I’m watching what is available on the market closer than ever to see if there is any changes that may arise.”
The rumor this evening is that the MSCI flat rolled inventory number for the end of June will be 2.4 months, down from 2.7 months at the end of May. However, based on the comments above, there does not seem to be any concern regarding inventories tightening from here or becoming short in any way.
John PackardRead more from John Packard
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