Seeking Alpha
Profile| Send Message|
( followers)

Summary and Outlook. The January MSCI distributor report painted the most robust picture of the health of the domestic steel market since the onset of the GFC. The 33% sequential rise in shipments is the highest January jump on record since the end of the last deep recession in 1983. Shipments for all products rose to post-recession highs while inventories overall dropped from 2.7 months’ on hand, to 2.1 months’ despite an increase of 4% in total tonnage while plate inventories actually dropped in the month on improving demand. The shipment surge was most surprising in beams – which rose 21% in the month – more than double the seasonal norm and particularly surprising given the weather which typically would inhibit construction. We expect February shipments to continue to rise and while inventories should increase in the coming month as well, we expect to see the surge in inventories tapering off as customers do less pre-buying as scrap prices – the best leading indicator for steel prices – have tapered off.

Total Shipments Hitting Cyclical Highs; Beams Surge. Soaring to the highest level since September 2008, January carbon steel shipments rose 33% from December, well above the normal seasonal uptick of 22% for the month. The sequential jump was the second largest increase in the month of January ever, second only to a 34% increase in January, 1983. Average daily shipments for all steel products surged with flat-rolled up 36.4% (vs. a normal seasonal 25%), plate up 30.3% (normal seasonal 20%), bars up 28.8% (average of 23%), pipe up 26.7% (average of 18%) and structurals up 21.1% (average of 11%). Flat-rolled shipments were the highest since August 2008, while shipments of bars and pipe & tubing were the highest since October 2008 and plate and structural shipments were the highest since November 2008.

Inventories Rise Except Plate. January steel inventories rose 4.3% to 7.6 million tons (mt) from 7.3 mt in December, mainly due to higher tonnage for flat-rolled (up 5.6%), structurals (up 5.6%) and bars (up 4.9%). Tonnage for pipe and tubing also rose by a modest 0.9%, while plate inventories actually fell, declining 1%. Adjusting for two fewer shipping days during January, overall months’ supply at 2.1 fell to the lowest level since last March at 2.1; a meaningful decline from 2.7 months’ in December as surging shipments more than offsetting higher tonnage on hand.

Disclosure: I am long RS and CLF.

Source: Robust Picture of Steel Fundamentals: Shipments Hit Cyclical Highs