SMU Data and Models

Service Center Inventories: Drop in January, Expect Bigger Drop in February

Written by John Packard

According to the Steel Market Update Service Center Flat Rolled Inventories Index, distributor inventories fell over the course of the month of January. Our index has distributors holding 2.8 months of supply as of the end of the month. This is 0.2 of a month’s supply lower than the 3 months of inventory held at distributors as of the end of December 2017.

Here are some of the details of our analysis. With 89 percent of the registered service centers responding with their end of January numbers, 46 percent of the respondents reported lower inventories, 31 percent reported higher inventories and 23 percent reported inventories that were essentially unchanged from their end of December levels.

Those inventories that rose were usually limited to 0.5 months of supply or less.

We saw significant movement with a few service centers who reported a change of greater than 1 month of supply. We learned from these service centers that they had strong shipments during the month of January.

Based on the following comments made to SMU during the collection process, we feel there will be further reduction in inventories once we get to the end of February:

• “Heavy shipments in January. Thought we may have pulled orders forward. However, even after our 5 percent increase Monday, we are still rocking and rolling every day this week. Things are getting tight.”

• “Our business feels slow, but most of that is due to a particular piece of business we just lost this month that represents 10 percent of our volume. I would expect only slightly down otherwise.”

• “Our inventories are at 6.1 months, down from 6.8 months in December. January shipping rate was very good, with early demand in February looking very good, as well.”

• “January started slow but ended up reaching goal. We have increased inventory at the end of January in order to hedge the price increases. February is looking to be a good shopping month, providing we can find freight availability.”

• “We started slower but came in over forecast.”

• “Good January. Not as strong as January 2017, but met expectations of a strong start to the year. February started strong for both shipments and orders, but some likely due to those trying to beat the market. But right now, February shipments are pacing about 10 percent less than January, which is somewhat normal.”

• “Shipments were nearly identical to January 2017, which was our second largest month of the year. February projects to be another solid month. Currently we are trending ahead of plan.”

• “[In January], we shipped just over 20 percent more than we budgeted. February will likely be 15 to 20 percent more than we budgeted.”

• “Tons per day [January] were up a little, but not significantly. Bookings have been stron, so February should be strong from a tons per day standpoint. Maybe up a little more from January. Resale market is much, much better.”

• “We beat our forecast by 7 percent [January]. February forecast was given to us in December. We anticipate shipping more than forecasted, hopefully by 7 percent.”

• “Sales were up 8 percent YOY and 3 percent over our internal forecast. Started slow [January], but the final week was the strongest we have seen in a long time. February is out of the gates better than expected. Our expectation is for another significant YOY gain.”

• “We managed sales in January – mill prices ran up faster than resale, so we raised prices ahead of sales to manage. We could have sold a lot more, but these cycles are so short we wanted the price to catch up. Not much surprise.”

• “January sales were 15 percent above expectations for both sides of the company; a very strong January. We expect a similar February. If I could just get the steel mills to ship my contract steel on time sales would be higher.”

• “On the spot market, we could blow through all our inventory, but we are contractual based throughout the term.”

• “We exceeded forecast in January by almost 50 percent. We have heavy CP inventories at about 3 months. Shipments into this market segment were not to forecast in January as many distributors are still selling from cheaper inventory. Other inventory segments are at about 2.5 months.” 

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