US steel buyers upbeat about market prospects

Flat-rolled and long steel product buyers appear upbeat about the US market, shrugging off producer price cuts as a factor of seasonal trends and lower input costs, rather than underlying weakness.

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Even as many buyers reduced inventories last month, they pointed to steady demand for many of their products, contributing to the more optimistic view.

Demand is “pretty good,” the purchasing executive for a national metals distributor told AMM. “It will probably have some bumps over the summer, but I expect it to hold up. We are watching inventories carefully, but you can’t sell out of an empty wagon.”

The president of a Canadian steel processor confirmed that some companies are reducing inventories this summer in the face of downward pressure on pricing but said he expected the trend to be short-lived.

“We have definitely been ordering less and reducing our position. It is inching down every week, and we will continue to do that,” he said.

“July is generally a slower month and [activity] doesn’t [usually] pick up before early August. … Some of it is automotive shutdowns. Construction in Canada slows in July, too, and holidays mean lower industrial production. We expect to ship less,” the Canadian executive said. “We hope prices will stabilize at a higher level in fall, but the offers for July and August are close to the bottom of the price cycle.”

Market sources largely agreed that commodity prices will reverse direction in the autumn. “They are now under negative pressure, but I think we’ll see some relief by the end of summer,” the purchasing executive for the national metals distributor said.

Until then, however, some buyers will continue to sit out.

“As prices continue to erode, we are not speculating,” a Mississippi Valley coil processor said. “The last price you pay may be the highest price you pay. In the next two weeks, we’ll have an idea where the bottom is, and after July 4, we may be back in the market.”

A Midwest flat-rolled distributor agreed. “There is still some room for prices to fall, but then we expect a strengthening in the August-to-September time frame,” he said, adding that other than the usual summer slowdown, “we don’t anticipate a huge drop-off in demand. It’s pretty steady and we are keeping an eye on the market for [purchasing] opportunities that may arise.”

Nearly 62% of Steel Buyers Forum members surveyed by the Institute for Supply Management (ISM) deemed their inventories in May were “right” compared with demand, while fewer [30.8% compared to 41.7% in April] saw them as too high.

Only 31% said they expect to reduce stocks further over the next six months compared with half who felt that was necessary a month earlier, the survey showed.

Contributing to the more upbeat outlook is the fact that imported steel doesn’t seem to be making inroads into the Midwest region, the Midwest distributor noted.

“Imports are staying on the coasts. It’s not worth the freight to ship it up here. With lead times so short at domestic mills and long lead times for foreign material, you can keep a leaner inventory buying domestically,” he added.