Looking at the trends in steel pricing for the 1st six months of 2016, it is hard to miss the direction and magnitude of the price increases that the market is seeing. The generally referenced pricing indices that many in the manufacturing sector follow have trended upwards in the arena of 60% since January 1. This observation is specific to the flat rolled sheet steel products that are the primary raw materials for the products that we provide to our valued customers. Looking specifically at the Cold Rolled CRU index, published pricing is now at its highest point since early 2012.
If we harken back to our economics 101 classes, it would be logical to conclude that overall demand must be strong to drive this upward pricing trend. As we all look at the makeup of our customers and the industries that we support, we do not see that the demand side of the equation is showing this same trajectory. While we have seen certain sectors showing healthy demand thus far in 2016, we are also seeing sluggish demand for many markets that we serve, particularly the Oil & Gas and Mining sectors. A broader look at the overall domestic manufacturing sector does not tend to support demand based pressure pushing steel pricing up. So why the upward trend?? In simple terms, if it is not demand, then it must be supply, and there is certainly evidence pointing in this direction.
At the producing mill level, U.S. raw steel production trended downward throughout 2015. In that same time frame we have also seen a lower mill capacity utilization rate than what has been typical over the past 5 years. And while those figures have trended back up in the 1st half of 2016, they remain at overall levels lower than the typical levels seen over the last 5 years. At the same time, the total service center inventory trend is down as well, suggesting a leaner overall steel pipeline. It seems clear that at the domestic steel producer level, there is a commitment to balance supply with demand. And while this can certainly be seen as a sound overall strategy, it must be balanced with a commitment to supporting and promoting a strong and growing domestic manufacturing sector.
Expanding the supply discussion beyond domestic production, we have seen an array of trade cases brought against global steel suppliers that have served to limit the current level of steel import activity into the US by global producers in certain grades of steel. This is certainly a contributing factor to the supply / demand / price balance that we are seeing.
So the net effect that we are seeing is undeniable in rising steel prices over the last 6 months. The cause can be debated, but it certainly stands to reason that the overall steel supply strategies at the producing mill level are contributing to elevated pricing thus far in 2016. Sko-Die remains committed to a strong and growing domestic manufacturing sector. We remain confident that our steel producing partners continue to share that vision and that their ongoing supply strategies will be balanced with maintaining competitive domestic pricing that will serve to strengthen the entire domestic manufacturing sector.
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