In the cyclical world of the metals industry, timing is everything. In recent years, procurement teams have operated in survival mode. Faced with geopolitical tensions, evolving tariff policies, and persistent supply chain disruptions, many companies moved away from traditional just-in-time inventory strategies. Instead, they adopted a just-in-case approach, accumulating sizable inventories of steel, aluminum, and specialty alloys to protect against potential shortages and cost volatility. While larger inventory positions can provide a critical buffer during periods of uncertainty, they come with a significant tradeoff. Excess inventory ties up working capital, increases storage and financing costs, and exposes companies to price declines when market conditions shift.
The trend remains evident in 2026. According to S&P Global’s May Manufacturing PMI, global factory output expanded at its fastest pace since July 2021. However, the increase appears to reflect precautionary stockpiling rather than a meaningful improvement in underlying demand. Manufacturers accelerated purchases of raw materials and built inventory levels amid concerns over potential supply disruptions, rising input costs, and ongoing geopolitical instability in the Middle East.
Furthering this point, the GEP Global Supply Chain Volatility Index, based on a monthly survey of 27,000 businesses, signaled continued pressure on global supply chains in May as manufacturers increased purchases and built safety stocks. May’s data also points to a rare pattern: for three consecutive months, stockpiling, shortages, and transportation costs have all been elevated. Outside the 2021-23 supply chain crisis, this has typically been followed by a sharp fall in the index as supply chains self-correct, often through weaker input demand or deteriorating economic conditions.
The Cost of Capital: Inventory is More Expensive Than Ever
When interest rates hovered near zero, carrying excess inventory came with relatively little financial consequence. Today, the macroeconomic landscape is entirely different. Elevated borrowing costs mean that carrying costs, the cumulative price of storing, insuring, and financing unsold metal, are far more visible on corporate balance sheets.
Every ton of steel coiled in a service center or aluminum billet stacked in a warehouse represents locked liquidity. For smaller or highly leveraged companies, this creates a double whammy: cash flow dries up because it is frozen in physical inventory, while the debt taken on to purchase that inventory requires higher interest payments. The result is a growing squeeze that is weakening balance sheets and elevating risk throughout the sector.
High inventory levels are shifting from an operational security blanket into a severe financial drag, fundamentally altering credit risk.
