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Destocking continues as prices stabilize.

Article Excerpt
Executives of publicly held companies offered insights on current market conditions as they released their second-quarter 2005 results in late July and early August. Service centers are coming out of a major destocking period after their 2004 buying binge, one factor that leads steelmakers to hope for improved order rates in the second half.

After purchasing too much steel late last year when demand began to soften, metals distributors and processors worked extremely hard to correct that imbalance in the first half, bringing their inventories down to more normal levels.

Carbon sheet producers throttled back on their usual flat-out melting schedules in response to lower order and shipment rates from distributors and end-users. This move to match production with demand may have helped stabilize the sharp downturn in carbon hot-roll spot market prices from a high of $780 per ton in fourth quarter 2004 to a low around $400 last month.

Most leading producers and distributors of carbon and stainless products reported growth in net sales for second-quarter 2005 vs. the same period last year, though many saw a decline in net income. Although the second half typically is a slower order period compared with the first half, many executives of service centers and mills anticipate a pickup in the market by September.

DISTRIBUTIONS DESTOCKING

Ryerson Tull Inc., Chicago, held 1.05 million tons of metal products at the end of the first quarter. By June 30, stocks were down 6.5 percent to 986,000 tons, says Neil Novich, chairman, president and CEO. In value terms, the company brought its inventories down by $47 million in the first half, and "we expect to take out about $50 million more by the end of the year."

At Toronto-based Russel Metals Inc., Vice President and CFO Brian Hedges reports that "we have our tons pretty tight now. It was a matter of getting the buy side caught up with the marketplace. Our inventories will continue to come down in tons during the third quarter."

Laurenco Goncalves, president and CEO of Metals USA Inc., Houston, remarks that "limited buying coupled with decent demand made Q2 a quarter of inventory reduction across the entire industry. We have reduced Metals USA's inventories by roughly 83,000 tons compared to year-end levels."

Olympic Steel Inc., Cleveland, decreased its inventory during the second quarter by $37.3 million, or 21 percent. "We continue to turn our inventory in excess of five times per year," says Chief Financial Officer Richard Marabito. Since Jan. 1, Olympic has decreased inventory by $53 million, or 27 percent.

Steel Technologies Inc.'s Bradford Ray, chair man and CEO, echoed his peers. "We continue to aggressively reduce and reposition our inventory. The company's inventory dropped by 10 to 15 days on hand compared with the previous quarter. "All the inventory we have is designated for customers," he adds.

PRICES: WHERE TO?

Jay M. Gratz, executive vice president and CFO at Ryerson Tull, predicts carbon fiat-roll pricing will be relatively weak in the third quarter, in tune with seasonal slowdowns at buyers' facilities, yet "literally within the last few days [of July 29], there are signs that could...

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