Seeking Alpha

Michelle Galant...'s  Instablog

Michelle Galanter Applebaum
Send Message
Michelle Galanter Applebaum is a long-time independent steel industry analyst with nearly 30 years of experience following the sector as well as an adjunct professor at Lake Forest College in Chicago. Ms. Applebaum spent over 20 years at Salomon Brothers in New York and Chicago. During her years... More
My company:
Steel Market Intelligence
  • July Steel Distributor Inventories Jump but Shipments Better Than Expected 0 comments
    Aug 20, 2011 11:01 PM | about stocks: NUE, AKS, X, MT, RS, STLD, CLF, ZEUS, WOR, RUSMF

    Steel Market Intelligence©

    July Steel Distributor Inventories Jump but Shipments Better than Expected

    ·         Steel Inventories Jump in July.  July MSCI carbon steel inventory tonnage rose a surprising 6.2% in the month driven by sharp increases for both flat-rolled (up 8.9%) and plate (up 7.7%).  While overall adjusted months’ supply (MOS) came in at 2.4, up 0.2 from June’s 2.2 and exactly in line with the seasonal trend, we were nevertheless surprised at the flat-rolled jump given the fairly continuous 20% slide in prices in the past few months. While we have seen commentary attributing this to “buy-ahead” by service centers (on the theory some were anticipating the August 10 $60/ton price increase), we strongly disagree and suspect that the increase was due to imported deliveries and mills catching up on delivery from material ordered in March/April when prices were moving higher fast – or a statistical error caused by timing in reporting.

     

    An inventory build ahead of a price increase of any real magnitude is historically unprecedented; in the last eight pricing cycles since 2001, flat-rolled inventories have only risen twice at the bottom, and these two upticks were 1.2% in July 2003 and 0.8% in November 2009, so nothing even close to a 9% jump; in fact the average decline in the month preceding a flat-rolled price increase historically is actually 5.5%.  So we would argue that not only is the July increase unusual, and in our view unintentional, but the sheer magnitude of the uptick is even more abnormal as it suggests that inventory building was widespread, which we find even less likely. If buyers were thinking there was a price increase coming, they were awfully quiet about it.

    ·         Carbon Steel Shipments Stronger than Normal.  Average daily shipments showed particular strength given seasonality, down some 4.1% versus the normal seasonal drop of 5.2%.  Bucking the overall trend, beam shipments actually rose some 10.9% in the month - versus a normal drop of 0.3% - but we assume the July strength in shipments was due to deferred purchases as a result of pricing confusion in June, so we do not expect that strength to be durable.  There was relative seasonal strength in shipments for pipe (down only 1.0% versus the normal 4.3% drop), bar (down 2.9% compared to the typical 4.6% decline) and plate (down 1.8% versus the normal drop of 3.2%), while the 6.3% decline in flat-rolled shipments was in-line with the typical seasonal drop.  

    ·         All Products Post Year-Over-Year Shipping Gains; Growth Rate Accelerates from June.  All carbon steel products recorded year-over-year shipments gains, with overall carbon shipments rising 14.3% versus year ago levels, a much sharper uptick than June’s 10.9% increase.  The year-over-year increase was mainly driven by stronger flat-rolled and plate shipments – up 16.7% and 16.6%, respectively – while pipe shipments were up 9.5%, and beam and bar shipments increased 7.7% and 5.5%.

    ·         Months’ Supply Sees Normal Seasonal Increase.  The combination of increased inventories and lower average daily shipments resulted in adjusted months’ supply rising to 2.4 from 2.2, in line with the normal seasonal jump – it’s notable that we have only a single time  over the last 33 years seen July MOS ever post a sequential decline.  MOS for flat-rolled and plate saw the largest increases, gaining 0.4 and 0.3 to 2.4 and 2.8 months in July, while bar rose 0.1 to 2.6.  MOS for pipe remained steady at 2.6 months, while MOS of beams declined 0.3 to 2.3 due to the sharp uptick in shipments and lower tonnage.

    ·         Outlook.  Average daily shipments typically rise 4.4% for total carbon steel shipments and an even greater 6.1% for flat-rolled in August, and we expect whatever the reason for the inventory build in July to flip into a meaningful liquidation in August. The flat-rolled price hike announced mid-month has been met with widespread skepticism, so that we believe buyers will continue to live hand-to-mouth in coming weeks, and suspect that the broad-based global strength we have seen in the face of macroeconomic jitters will drift to the US – in fact – the last time US sheet prices traded at a discount to Japan, Europe and China was in November 2010, when prices bottomed and subsequently skyrocketed by over $300/ton before peaking in the March/April timeframe.

     


    Themes: STEEL Stocks: NUE, AKS, X, MT, RS, STLD, CLF, ZEUS, WOR, RUSMF
Back To Michelle Galanter Applebaum's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.