Disappointing Trend in Steel Inventories

Inventories Rise While Shipments Fall. December service center inventories and shipments both had bad news, as total inventories rose 4.7% and months' supply increased to an adjusted 3.2 months on hand from 2.5 months in November. Average daily shipments fell 16.7% in December, which is only a slightly wider decline than December's 10-year average seasonal decline of 14.2%. Average daily shipments were down 5.5% year over year, which is somewhat encouraging as it was by far the smallest year-over-year decline of 2009.
Flat-Rolled Inventory Rises Again. Flat-rolled inventories increased 8.1% to 3.5 million tons, accounting for most of the rise in overall inventories on a tonnage basis. Adjusted months' supply rose from 2.2 in November to 3.0 months in December as average daily shipments plunged 20.5%. This is worrisome and we hope it's only a seasonal phenomenon that will be short-lived as evidenced by the escalating sheet prices of the past month.

Structural and Plate Inventories Rise; Pipe and Tubing Falls. Structural and plate inventories each rose in December after falling to the lowest level we have on record in November, with tonnage increases of 4.9% and 3.5%, respectively. Adjusted months' supply of beams rose from 2.6 to 3.0 months with average daily shipments down 6.9%, while plate supply on hand increased from 3.2 months to an adjusted 3.4 months. Pipe and tube inventories fell 3.6% to the lowest level in two decades, with an adjusted months' supply rising from 3.3 to 3.6 as average daily shipments decreased 12.3% in December.

Outlook -- We're Still in the New Normal. We are somewhat troubled by the uptick in inventory levels, particularly for flat-rolled. However, inventory levels are still low by historical standards and we expect to see rising shipments in the near term as we move past the seasonal weakness, which should keep the months' supply in check.