HARDI Wholesalers Hit by Delays and Backlogs

Weather has played a pivotal role over the past couple of months and in the North and Northeast, in particular, there is a backlog of business that the wholesalers hope will mean a strong second quarter. Projections are for decent business in the coming months but the demand is not quite yet there to support price increases.

Weather severely impacted truck shipments in the Northeast and Midwest. One service center said that normally they wouldn’t have any problem getting 15-18 truckloads a day but are now struggling to get four or five. With extreme winter conditions closing expressways and toll roads from New York to the Carolinas, freight has not been moving. One service center said there have been 2-3 weeks when they couldn’t move any product at all.

One of the participants on the call pointed out two main reasons why galvanized steel prices have been in decline over the past couple of months: a lack of construction demand which impacts the mills order books and, an increase in imports which is affecting inventories and the need to buy (as well as pricing).

HARDI members pointed out that the spread between domestic and foreign galvanized reached as high as $160 per ton. At that level not only did manufacturing companies and service centers buy inventory for first and second quarter but, the spread was large enough to entice foreign trading companies to take positions on unsold material. A couple of the participants pointed out that there is a lot of unsold material that fits the HVAC profile sitting on the docks.

The HARDI members also continued to complain about service center competition. A comment was made by a Southeast based wholesaler that he was seeing prices from the competition that “make no sense.” This executive went on to say, “It will be interesting to see if these price increases will change any behaviors.” He continued with, “I doubt it.”

A service center told the group that their company believed that we are in a strong market and that the recent downturn in prices was nothing more than a mini-cycle within the stronger up cycle. The two main drivers for the price softening, he said, were “a lack of construction demand, which makes up 50% of the market and the increase in imports.”

A lack of, or slowing of orders, is also keeping ships at port. Delays in shipping are occurring because cargoes are not full and can’t set sail. Departure times have been delayed 3-4 weeks in some cases.

When looking back at past HARDI conference calls SMU feels that this one had a silver lining to it. There are a number of wholesalers from the West Coast to the East who believe market conditions for the HVAC industry are improving and will continue to do so as the year progresses.