By Josh Spoores
Surveys of large buyers often provide insights to specific markets. The May ISM Steel Buyer’s Forum is one of these surveys providing insights to better understand the steel market. This survey is conducted of large steel buyers (50,000 tons) and does not represent the views of steel producers or scrap dealers.
Inventories Look Healthy
Sixty percent of buyers are calling their inventory levels ‘just right’ while 30% say they are too high as compared to current levels of demand. At Steel Reality, I use a weighted average to convert this survey into ‘days of inventory’ and my calculation shows around 57 days of inventory for these buyers, which is about 14% lower than the five-year average of 66 days. The range has been 49 to 80 days, signaling low, yet manageable inventories.
Forecast Of Incoming Orders And Customer Backlogs Are Bullish
Incoming order levels are very near the most efficient level of operation for 70% of these buyers. The trend for incoming orders over the next three months has 40% of buyers looking for higher orders and 50% looking for orders to stay constant. This is a noticeable shift in new orders as the April survey had 42% of buyers looking for orders to fall over the next five months.
Order backlogs over June, July and August are forecast to increase by 40% of buyers while another 40% are looking for backlogs to stay constant.
My favorite question in this survey is: “At present production rates and with no new orders, how long would your current order book last?” This question has 60% of buyers listing their backlogs at 1-2 months, 20% say 2-4 months (down from 33% last month) and 20% say 4-6 months (up from 8% in April). This works out to an average of 2.5 months, up from 2.3 months last month. The average of the past 12 months was 2.2 months, so this question is pointing towards growing levels of order backlogs.
Imports To Lose Market Share
A noticeable shift in trends has occurred over the past few months regarding imported steel. The ISM survey has recently pointed to increased interest and activity of foreign mills as their prices were aggressive (67% of buyers in April said foreign prices were below or well below domestic levels).
The May survey, coinciding with rapidly falling domestic prices, now shows 70% of buyers noting foreign prices are not significantly different from domestic prices, while 10% say foreign prices are more expensive.
As domestic steel prices have corrected, this survey has picked up a reversion in activity levels and interest of foreign mills seeking business in the United States. Buyers reflect the same change of interest as 0% are looking to increase their usage of foreign steel over the next six months (down from 10% for the past two months). Twenty-nine percent of buyers are looking at less dependence on foreign steel over the next six months, which has increased from 10% in April.
The balance of this survey provides insight into other interesting areas such as the competitiveness of selling prices, how well customers are paying, plans for hiring or building new facilities, as well as views of the economy over the next six months.
Overall, inventories appear stable, yet low, while the expected increase in new orders and backlogs is a welcome sign in today’s economy. The recent price correction of flat rolled steel is likely the reason for fewer import needs and upcoming import data should reflect this change in sentiment.
The survey is hosted by Western Illinois University and can be found at: http://cms.wiu.edu/university_surveys/ismsurveyresults/index.php.
Josh Spoores is the founder and Chief Analyst of Steel Reality, a market analysis firm covering flat rolled steel. Prior to founding Steel Reality, Spoores spent six years in a strategy role as Market Research Manager at Majestic Steel USA – one of the largest buyers of flat rolled steel in the U.S. Spoores has spoken at various steel and raw material conferences throughout the country as well as internationally.
A graduate of Bowling Green State University, Mr. Spoores’ prior experience includes analyst and product management positions at a financial institution and in the local search media industry.
Steel Reality publishes reports covering weekly market and steel futures data, as well as a report covering the economic data that drives the steel market.
George E. Krauter
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