SMU was disappointed in two key data sets which were released this past week. The first was the MSCI service center shipment and inventories which indicated a weakening economy and a continuation of the high inventory levels at the U.S. distributors. The second was the import license data through the first 15 days of October which indicated continued strong steel imports with the trend suggesting October imports could exceed 3.5 million net tons. Both are bearish for flat rolled steel prices moving forward.
In a report to our Premium level members, Steel Market Update calculated service center flat rolled steel inventory excess as having increased by 200,000 tons above August levels during the month of September. September shipments were 9.7 percent less than one year ago and they were 3,000 tons per day fewer than August 2015.
The 3 year average for shipments during the month of September is 108,500 net tons per day. September was 7,600 net tons per day below the previous three year average.
At the same time September receipts increased to 107,938 tons per day (7,000 tons per day greater than shipments). We were lower than the 3 year average down 3.7 percent but not enough to ease the inventory squeeze that has been ongoing for virtually of 2015.
If foreign steel imports reach the levels suggested by license data released this past week then we do not believe the distributors will have any chance to reduce inventories.
In our new Apparent Excess forecast provided to our Premium level members SMU is forecasting October inventories to grow by an additional 200,000+ tons above September levels. Service centers do not have the ability to adjust purchasing practices fast enough to adjust to the lower demand levels being seen at the end users.
This will keep pressure on short term spot prices and probably will make the WARN announcements made by US Steel and AK Steel become reality as the domestic mills struggle to deal with the over-supply situation.
We reviewed Metal Miner HRC support levels to see if their September report provides any new information about a possible change in the bearish trend we have seen for virtually all of 2015. The Metal Miner support level for HRC is $404 per ton and SMU HRC index is now at $410 per ton.
SMU Price Momentum Indicator is pointing toward lower flat rolled spot prices in the next 30 days and we will be carefully watching to see if the HRC average will break below $404 per ton in the coming days.
John PackardRead more from John Packard
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