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January 1, 2005

Master Your Domain

Take a deeper look at the MSCI Metals Activity Report to gauge where you stand among your peers—and plot how to move ahead of the pack.

Demand forecasting, a black art for some and essential skill for all metals companies, can be completed by guess and by golly—or it can be rooted in timely, real market data and actionable insights.

That's why the Metals Service Center Institute, in one of many improvements since 2001 to its programs and services, created the Metals Activity Report (MAR), a unique, monthly summary of shipments, inventories and the outlook for the 12 most popular metals products sold in the United States and Canada.

“For some purposes, [MAR] is the bible—the one and only source we trust to determine market share,” says Donald Morrison, treasurer, Integris Metals, Minneapolis. “When it comes to economic trends, we use this information to triangulate noise coming from outside sources.”

Adds Michael McCoy, president of McCoy, Scott & Co., the Lisle, Illinois-based economic research firm that compiles the monthly report, “This report is the only window that service center management has that looks out over the industry. There's no other report that gives you this kind of snapshot, no other source of metals inventory reporting. People in the industry have an intuitive sense of what's going on in the industry, but sometimes intuition isn't right. This gives you a solid basis of fact to make decisions.”

With MAR data, companies can analyze supply and demand trends and compare their sales performance with the industry as a whole. Seasonally adjusted data, which accounts for normal manufacturing peaks in March and downward spikes in November and December, allows analysts to spot real trends.

The report has proven to be so accurate at providing information on the highs and lows that MSCI sends updates to the Federal Reserve Board in Washington, D.C., and the U.S. Bureau of the Census uses the data to estimate industrial production.

“Reports show service center data is a key economic indicator,” McCoy says. “Our data did foreshadow the economic slowdown of 2001, as well as the recovery of 2003. This data provides a consistent, accurate picture of U.S. and Canadian metals distribution market activity. Research being conducted by MSCI suggests that metals distributor shipments may be a good indicator of economic activity because the data is reported on a timely basis and is not revised often.

FACT VS. FICTION

Integris, which has agreed to be purchased by Ryerson Tull Inc., began using MAR data to enable informed strategic decisions—rather than just relying on an executive hunch about market share. By examining the trends, executives better understand industry dynamics and the changes in business activity levels.

“If we find our market share is increasing, we get a pat on the back from our board,” Morrison says. “If it's declining, we do a root analysis to find out why. A good baseline allows us to find out whether our business strategy is headed in the right direction. MAR allows you to have a degree of confidence in what you're doing.”

The MAR gives a strategic rather than tactical advantage, Morrison says. For example, industry executives looking at their companies' share of the stainless steel market in 2002–2003 could determine whether their company's sales were eroding faster than their competitors' and make adjustments accordingly, he says.

Because the service center participates in the report by providing its own monthly numbers, Integris executives receive the most complete picture available. Their reports show not only seasonally adjusted industry performance, but also Integris' own charted numbers along with a three-month forecast of future activity. “Now we have true insight into what's really happening,” Morrison says. “For us, MAR information has cut out the jury of management opinion on where the industry is headed. This is real data, not anecdotal.”

Morrison believes MAR's seasonally adjusted mathematical forecasts have effectively predicted the direction of market and service center sales. Case in point: Integris monitors MAR calculations every month for signs of an economic downturn. At the beginning of 2004, MAR showed strong indicators of a rising stainless market, and that accurate prediction helped Integris executives better manage inventory levels.

OPEN MINDED

With a MAR benchmark of a company's historic performance and realistic trends for the future, inventory can be matched to anticipated shipments, thus freeing up money in the system. Inventory managers can begin to understand the most appropriate level to maintain, and executives can find more capital for expansion.

“The cost of not having sufficient inventory is not often identified,” McCoy says. “If customers find that the item they want is out of stock, they go somewhere else. The cost of too little inventory is lost customers and broken relationships.”

Glenn Davis, corporate inventory manager, O'Neal Steel Inc., Birmingham, Alabama, uses MAR numbers to gain insight on industry inventory levels. “They usually give a read on how busy the producing mills will be in the next few months, which in turn can affect price levels,” he says.

The participating survey member version of MAR also provides information on order quantities, which helps O'Neal executives gauge mill business levels. “We look at the momentum indicators closely and compare industry trends with our own,” Davis says.

He stresses that O'Neal leaders are bombarded with information each month, but MAR numbers are extremely credible, allowing them to make strategic decisions. For example, the momentum indicator reveals trends in market activity, short term vs. long term rates of change, allowing executives to think about how they approach inventory levels and pricing.

The numbers have a variety of uses. Robert Klasing, chief executive officer of Tubular Steel Inc., St. Louis, correlates MAR information with internal systems to gain a top-line view of process efficiency. “I recalculate shipment volume to equate to my 4-4-5 accounting method,” Klasing says. (The 4-4-5 system calculates totals using the same number of weeks in any calendar quarter to allow accurate comparisons across the continuum.) “When I compare my tonnage per day change vs. the industry's totals, that percentage is real and consistent.”

Klasing also uses MAR as the litmus test for Tubular's decision-making. “We network within our industry daily to get a good sense of what's changing costwise, demandwise or pricewise,” he says. “This report confirms what we're hearing. It's informative to know if your plays are trailing the marketplace, and we can see if we're in step with the data. If it's different than what's really going on in the industry, it makes us examine our strategy as a whole.”

When applying for financing, executives can use MAR data to show fact-based trends. In addition, these numbers allow service centers that are subsidiaries of diversified companies to describe to their parents how far above or below they are in relation to industry.

MAR data gives executives an edge beyond just price. “To act rationally, you have to anticipate the market,” Morrison says. “We want to get away from a reactionary mindset, and this information helps us do that.”

IN THE BEGINNING

In 2003, MSCI re-evaluated its long standing distributor shipments and inventory reports called Business Conditions II and based on that analysis transitioned to the new Metals Activity Report (MAR). Industry data from the United States and Canada was re-benchmarked to account for the most recent economic study indicating the estimated size of the metals product categories covered by the reports. Most recently, in October 2004, MSCI added aluminum distributor shipments with revised benchmarks using similarly derived data.

Today, MAR is based on information provided by more than 50 North American metals distribution companies that represent a substantial portion of metals industry shipments. “The shipments of metal service centers mirror activity in final market demand,” says Chris Marti, MSCI vice president, research and technology. Four versions, each with progressively greater depth of information, are customized for different audiences:

  • The PRESS REPORT features only the overall industry shipment and inventory totals
  • The SUBSCRIBER REPORT breaks down industry totals by 12 metals categories
  • The MSCI MEMBER REPORT includes seasonally adjusted shipment statistics
  • The SURVEY PARTICIPANT REPORT—distributed to the companies that provide information—service center-specific data, a comprehensive, graphical analysis of industry performance and a three-month projection of industry movements.

Another version of MAR addresses service center activity in the Canadian marketplace. Canadian economic activity varies from that of the United States, but service center shipments track similarly in Canada's economy.

WWW.MSCI.ORG
MSCI members can view the Metals Activity Report at www.msci.org. To find out more about how MAR can benefit your company, contact Chris Marti at MSCI headquarters at 847-485-3009.