MSCI Data Shows Strong Service Center Shipments in December

Intake and Shipments

In December, total carbon steel intake at 132,800 tons per day was down from 138,900 tons in November and was 6,200 tons more than shipments. This was the first month of surplus after two months of deficit. Total sheet products had an intake surplus of 9,100 tons.  

Total daily carbon steel shipments decreased from 143,500 tons in November to 126,600 tons in December. MSCI data is quite seasonal and we need to eliminate that effect before commenting in detail on an individual month’s result. Figure 1 demonstrates this seasonality and why comparing a month’s performance with the previous month can be misleading, particularly in July and the fourth quarter of the year. As is normal, shipments decreased dramatically in December, but the decline was less than the historical average. In the commentary below, we report year-over-year changes to eliminate seasonality and provide an undistorted view of market direction.

Table 1 shows the performance by product in December compared to the same month last year along with the average daily shipments for this and the two previous months of December. We then calculate the percent change between December 2017 and December 2016 and compare it with the most recent three-year December average. December this year was up by 8.6 percent from December 2016 and up by 4.5 percent from the three-year December average. The fact that the year-over-year growth comparison is better than the three-year comparison suggests that momentum is positive. We now have 12 straight months where the year-over-year change has been positive, and increasingly so for each of the last six months.

Shipments of all individual products except pipe and tube were up from December last year. Figure 2 shows the long-term trend of daily carbon steel shipments since 2000 as three-month moving averages (3MMA). The quickest way to size up the market is the brown bars in Figures 2-6, which show the percentage year-over-year change in shipments by product. In January on a 3MMA basis, there was positive year-over-year growth of 0.07 percent, which improved to 6.97 percent in December. These were the first positive year-over-year results since February 2015.

Figure 3 shows monthly long product shipments from service centers as a 3MMA with year-over-year change. Growth has improved this year and is now the highest it has been since late 2010. Eight months through December all exceeded a 10 percent year-over-year growth rate on a 3MMA basis, and in the latest data growth was 14.7 percent.

Figures 4, 5 and 6 show the 3MMA of daily shipments and the year-over-year growth for sheet, plate and tubular goods, respectively. Plate performed much worse than sheet in 2015 and 2016. This year, plate has begun to close the gap. Pipe and tube have performed very poorly since early 2015, which coincided with the decline in rig count. The rig count has doubled from where it was this time last year, but so far this has not translated into year-over-year shipment growth of pipe and tube from service centers.

In 2006 and 2007, the mills and service centers were operating at maximum capacity. Figure 7 takes the monthly shipments by product and indexes them to the average for 2006 and 2007 to measure the extent to which shipments of each product have recovered. Each year, all products experience the December collapse and January pickup. In December, the total of carbon steel products was 56.9 percent of the average monthly shipping rate that occurred in 2006 and 2007. Structurals were 51.8 percent and bar was 48.8 percent. Sheet was at 67.1 percent, plate at 59.0 percent and tubulars at 52.4 percent.

Inventories

March closed with months on hand (MoH) of 1.94 for all carbon steel products, which was the lowest level in 13 years, since August 2004. This anomaly partly resulted from 23 shipping days, which is the maximum that ever occurs. We have now removed that effect as described in the notes below. Compared to the end of December last year, total carbon steel inventories were up from 49.7 to 57.3 days on hand (DoH). On a tonnage basis, total carbon steel inventories at the end of December were up by 7.5 percent year over year, but down by 7.7 percent compared to the end of December 2015. Compared to 2016, all products except tubular goods had an inventory tonnage increase. Figure 8 shows the DoH by product monthly since January 2009. Figure 9 shows both the month-end inventory and days on hand since January 2008 for total sheet products. In the last three years, both the year-end spikes and the mid-year troughs of sheet inventory tonnage have been declining.

SMU Comment: In Figures 2-6, the white lines show tons-per-day shipments on a 3MMA basis. In the first few months of 2017, there was the normal seasonal increase in total shipments as December moved out of the rolling-three-month picture. However, there has been a big difference between products. Long products have enjoyed double-digit growth in the last nine months, but at the other extreme tubulars have not had a positive month since February 2015. Plate has grown strongly this year and has performed much more robustly than sheet, which had slightly negative year-over-year growth in both June and July but has improved every month since. These observations don’t jibe with our analysis of AISI and Commerce Department data. Figure 10 shows the total supply to the market of long and flat products based on AISI shipment and import data through November, which is the latest data available.

Total supply of long products has gone nowhere since mid-2014, in contrast to the recent double-digit growth at the service center level. This suggests that the service center share has increased in 2017. Flat rolled products, on the other hand, were down in September through November, but even so have had a growth surge in total supply to the market for the last 12 months. At the service center level, sheet products haven’t done much this year, though plate with its much smaller volume has fared better. There is also a discrepancy between total supply to the market and service center shipments of tubular goods. The total supply of tubulars is up sharply this year, according to AISI and the Commerce Department, but service center year-over-year shipments have been in decline since February 2015.

Notes: In this analysis, we began to report days on hand for the first time in August 2017. All previous SMU updates reported months on hand. The problem with MoH is that it is influenced by the number of shipping days, therefore another variable is introduced. In months with a high number of shipping days, monthly shipments are elevated, which reduces the numerical value of inventory divided by shipments. In months with few shipping days, the reverse is the case. This is a big deal because shipping days can be as low as 18 and as high as 23. This variable is eliminated by considering inventory divided by daily shipments.

The SMU database contains many more product-specific charts than can be shown in this brief review. For each product, we have 10-year charts for shipments, intake, inventory tonnage and months on hand, available on request.