Metal Service Center Outlook for 2016

April 5, 2016 / , , , , , ,

Last year was a rough one for the metal-cutting industry. While many metal service centers were glad to put a close on 2015, most are bracing themselves for more of the same challenges in the year ahead.

Playing Catch-Up
For metal service centers, most of 2015 was spent playing catch-up with high inventory levels from the year before. Continued low demand and prices didn’t do much to free-up working capital, so the cycle continued: Metal service centers actively worked to reduce inventory in an effort to maintain, or at least even out, prices.

While the automotive and construction categories did boost demand in 2015, as forecasted in our Metal Service Center Outlook for 2015, the energy sector dealt a blow with historically low oil and gas prices, essentially negating any uptick the metal industry experienced to date.

Downward Slope
At the end of 2015, shipments of steel and aluminum were not only down month-over-month but year-over-year as well. According to data from the Metal Service Center Institute (MSCI), U.S. service center steel shipments declined in December by 11.4% from the prior-year, while shipments of aluminum decreased by 3.5%. As metal service centers focused on  offloading high-priced materials, steel and aluminum inventories decreased by 16.2% and 3.3%, respectively, from the prior-year.

The decline seen in 2015, unfortunately, continued to impact metal service centers during the first two months of 2016—even with drastically reduced inventory levels—albeit slower than before. The latest figures from MSCI report U.S. service center steel shipments in February decreased 4.6% from February 2015, and shipments of aluminum products decreased by 0.4% compared to the same time last year. Inventories in February also decreased 20.6% and 7.7%, respectively, from the prior-year period.

Gloomy Forecast Ahead
With growth falling short of expectations to date, the manufacturing industry is expecting to see more of the same challenges throughout 2016. In fact, the Manufacturers Alliance for Productivity and Innovation (MAPI) recently lowered its manufacturing forecast for 2016 and 2017 due to high inventory levels and plummeting oil prices. In addition, slightly more than half of manufacturing respondents believe 2016 will be the same or worse than 2015, according to the  December 2015 Semiannual Economic Forecast from the Institute for Supply Management.

Staying the Course
While 2016 clearly isn’t going to be one for the record books, there are still opportunities for growth. According to an executive roundtable report by Metal Center News, the following two industries are expected to help metal service centers ride out the storm:

Yes, the rest of 2016 is set to be a challenging  year for metal service centers thanks to inventory levels and low oil prices. Despite the obstacles, however, there are a few bright spots. As described above, increasing demand from the automotive and construction industries provide some opportunities for growth. Some reports are even forecasting increased steel demand from the solar energy sector.

Service centers that take advantage of market opportunities while continuing their strategic planning and continuous improvement activities should be able stay the course in 2016, and, hopefully, position themselves for a strong performance in 2017.

What sectors is your metal service center focusing on in 2016? What strategies are you following to see out the rest of the year?