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What Does the Falling Service Center Steel Inventory Tell Us?

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Falling service center steel inventory

A metals service center acquires primary metals like steel, aluminum, brass, copper, and alloy steel from metal producers. It processes them to customer specifications. Reliance Steel & Aluminum (RS) is the largest service center in North America. These service centers act as a bridge between metal producers and end consumers. According to estimates, service centers supply more than a quarter of the total steel consumption in the US (DIA). This makes them an important distribution channel for steel companies like U.S. Steel (X), AK Steel (AKS), and ArcelorMittal (MT).

During the fiscal 3Q15 earnings call, most steel producers said that the service center buying activity was subdued in the quarter. Steel companies highlighted lower steel demand from service centers as one of the reasons behind falling steel shipments.

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November inventory

Metal service centers continued their destocking activity in November. As of November 30, US service centers had a steel inventory of 8.5 million metric tons—the lowest in the last 19 months. The above graph shows the falling trend in service center inventory.

Falling spot steel prices played a role in the service center destocking activity. When steel prices are falling, buyers including metal service centers hold their purchase orders and wait for better prices. The sentiment in the steel industry got worse in the last couple of months. The negative sentiments in the steel industry are also dampening the service center restocking activity.

However, we might see an uptick in service center buying activity in the coming months. We’ll explore this more in the next part of the series.

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