Many mill and service center executives are uneasy about surging U.S. steel imports, and rightfully so. Are imports the start of a significant disruption to the market’s supply/demand balance?

U.S. steel imports hit the second-highest level ever in July with 4.2 million tons, second only to the August 1998 total of 4.4 million tons, the Census Bureau reports. July imports were up more than 13% from June’s total of 3.7 million tons.

August imports declined by 9.3% to 3.1 millions tons, and September import licenses were down 20% from August at 3.2 million tons (at press time, final September import data was unavailable). Still, the year may set all-time records. At the current rate, imports for the year would reach 36.6 million tons, up nearly 53% from 2005’s 25.2 million tons.

But are these import levels justified by demand? Robert W. Johns, director of marketing for Nucor Corp.’s Sheet Mills Group who leads the company’s trade law efforts, says the amount of steel being consumed in the United States does not require high import levels. “We’re at record levels right now with no real significant increase in actual chew-up,” he says.

Actual consumption of steel for cars, homes and appliances, for example, has remained relatively constant and does not justify the import surge, Johns says. But there is growing concern that demand will soften at a time of rising inventories. UBS analyst Timna Tanners wrote in a recent report that demand will likely be flat to lower in the next several months, a contrast to the strong levels of 2006. The outlook for steel sheet, she wrote, was particularly worrisome.

Stocks on hand at service centers rose to a seasonally adjusted supply of 3.4 months in August, up from a low of 2.7 months in November 2005, MSCI data shows.

But John Anton, manager of forecaster Global Insight’s Steel Service, in Waltham, Massachusetts, attributes the surge in imports to the low inventory levels of 2005. “It’s taken until now for those levels to be replenished,” he says. “[The current import surge] is a reaction to 2005.”

Still, many believe that import levels will continue to fall in 2007, but that may be determined by buyer behavior more than anything. “Most steel buyers have seen this coming and are being very cautious,” Anton says. “They’ll probably be quick to turn off the import tap.”