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How Are Metal Service Centers Managing Their Steel Inventories?

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Steel inventories

A metal service center acquires primary metals such as steel, aluminum, brass, copper, and alloy steel from metal producers. 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 in the United States (DIA). This makes them an important distribution channel for steel companies such as United States Steel (X), AK Steel (AKS), and Nucor (NUE).

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In April 2016, US service center steel shipments fell 6.3% year-over-year (or YoY). This was preceded by a 9.2% and 4.6% YoY decline in March and February, respectively. US service center steel shipments have been in a falling trend since the beginning of 2015 largely due to lower tubular steel demand and high import penetration.

Inventory continues to fall

While service center steel inventories declined by more than 22% YoY in April, they were almost flat compared to March. Note that the YoY decline in inventory is expected since we saw significant destocking activity last year. However, some stability seems to be returning to service center inventories, which we can see in the stable month-over-month numbers.

Meanwhile, there hasn’t been inventory restocking activity as many were expecting. It seems that steel buyers are buying only according to their current needs and not looking at restocking their depleted stock. Nonetheless, this has not deterred the steep rally in carbon steel prices, which we’ll explore in the next part of the series.

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