Friday, September 29, 2006

Mounting Steel Stockpiles in US

Inventories of steel have been piling up in customer warehouses in the U.S., creating worries of a glut and downward pressure on prices.

The rising supplies come as U.S. auto makers are cutting back domestic production, and could be a sign of weakness in some other parts of the U.S. manufacturing sector.

Service centers, which buy 30% of the steel sold in the U.S. and resell it to manufacturers, report that inventories are at the highest level since January 2005, with 15.9 million tons on hand, or 3.1 months of supply in August. That is down from 3.4 months of supply in July, but up from the 2.7-month supply in August 2005, according to the Metal Service Center Institute, based near Chicago.

Meanwhile, year-to-date steel imports into the U.S. are 40% higher than a year earlier, as steel makers elsewhere seek out higher U.S. prices. With 30 million tons imported through August, imports are on pace to exceed the record 41.5 million tons in 1998. Much of the imported steel is coming from China, which has increased production by double-digit percentages. Some analysts suggest some of the world's largest steel companies might curb production to reduce oversupply risks and prevent volatile pricing swings. Several steelmakers made a similar move, successfully, in 2005 as a glut developed. In that case, steel prices fell steadily for 10 months but didn't crash as they have in previous cycles.

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 Steelmakers have been bullish for some time now and quite ready to reduce production to protect prices. As global steel production goes in to "overdrive" with increasing quantities being produced in China, Russia and India, it will be interesting to see whether prices can withstand an ever increasing supply.


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