Steel Products

HARDI Steel Buyers “Cautious” Regarding Price Announcement

January 23, 2013

Steel Market Update (SMU) participates in a monthly conference call with HARDI wholesalers who sell galvanized sheet and coil into the HVAC mechanical contractors and related industries for residential and commercial construction applications. The purpose of the call is to discuss steel trends which may impact their regional businesses – this includes domestic mill and service center spot pricing and trends, demand trends and other issues which impact their ability to conduct business.

With the AK Steel announcement having been made on Monday the issue of price increases and what the other domestic steel mills would do next was a topic of discussion. It was the opinion of one of the large service centers who also participates on the call on a regular basis, that the domestic lead times “are not great” but the mills are hitting a “breaking point where their numbers are at a point where they can’t allow them to collapse.” This service center termed the increases that he felt was coming as an opportunity for the mills to “reset” their numbers. “They are not piling on to the $100-$110 in increases they already announced but rather only on top of what they were able to collect,” is what he told the wholesalers.

A Midwest based wholesaler spoke of one of his mill suppliers admitting their galvanized base prices as having eroded over the past week. However, with the threat of price increase announcements in the air their supplier was able to generate an order out of their company with the idea of prices moving higher from here.

Other wholesalers were less committed to the increases having any ability to stick. A Southeastern based wholesaler told the group that he believed the announcement may “stop the slide in prices, but doesn’t add any comfort to me as a buyer. We will continue to buy only what we need.” He went on to say, “I hope we aren’t having a conversation in March talking about cheaper numbers…my fear is the mills are just kicking the can down the road….”

One of the manufacturing companies out of Canada told the group one of their U.S. based service center suppliers told them to “go minimum now and it [prices] will erode and be lower in March.”

A U.S. based manufacturing company out of the Northeast told the group that the foreign mills they deal with did not collect an increase after attempting to collect $30 per ton. He told the group, “…if you give them tonnage – large tonnage….” Later, when speaking of the domestic mills he warned the group, “All you need is one mill willing to negotiate.”

When reviewing business conditions SMU found there to be discussions of more business to be had (although very competitive and at low margins) which is an improvement over what we were reporting one year ago.

There was mention of the Institute for Trend Research/HARDI webinar where ITR is forecasting 2013 to be a better year for the wholesalers – although at the same time they are also forecasting a mild recession in 2014.

The group was warned to pay attention to mill lead times and that service centers should be forced to collect the higher costs for the $40 to $50 in price increases they had to take since early 4th Quarter 2012. The higher priced material is now arriving on the floor and should be priced higher in the resell market.

However, the wholesalers continued to complain about service centers who have been selling direct to mechanical contractors at prices which do not include any price increases. These non-traditional service centers are preventing traditional suppliers from paying higher prices to their suppliers. One reason which may cause issues for the latest price announcement(s) from those within the HVAC wholesale industry.

Note: HARDI = Heating, Air-conditioning, Refrigeration, Distributors International