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April 15, 2015 Tanners: Distributors Cautious About 2Q Service centers are slightly less upbeat about demand in the second quarter and many continue to reduce inventories, but their outlook for steel prices later in the year is positive, reports Bank of America Merrill Lynch, based on its quarterly survey of steel buyers. The majority of respondents, about 54 percent, expect higher demand in the coming months, but that number is down from 67 percent in the previous survey. Although service center shipments declined 2.5 percent through the first two months of the year, most respondents expect decent demand through 2015, especially from the nonresidential construction and automotive sectors. Their biggest worries are the collapse of energy-related demand and the effects of the strong U.S. dollar on exports. Sixty-five percent of respondents said they planned further reductions in their stock levels. Destocking among distributors clearly is weighing on consumption, reports Timna Tanners, senior research analyst for Bank of America Merrill Lynch. “Yet underlying demand appears solid from our channel checks, excluding the energy sector.” On the pricing side, the benchmark hot-rolled coil price cited by respondents was around $475 per short ton. Imports are expected to remain flat compared with recent levels. With prices so low, domestic lead times shortening and U.S. mills offering discounts, there is little advantage to buying overseas, analysts say. The majority of buyers surveyed anticipate a second-half rebound in the steel price to the $500-550 per ton range, as does Bank of America Merrill Lynch, which forecasts the HRC price to average $540 per ton for the year. “Prices have overcorrected amid destocking, in our view, but irrespective of a trade case, we expect a modest rebound on fewer imports,” she said. “Price recovery may be a month or so away, but we do think prices have bottomed based on the marginal cost of production for low-cost minimills and the near pricing parity of imports.”