HARDI Wholesalers Believe Price Move Not Done Quite Yet

Even with demand being deemed as “good” or better, galvanized steel prices continue to falter. One of the wholesalers told the group that they have been able to go to weekly pricing with one of the galvanized steel mill suppliers as a way of keeping their pricing as competitive as possible. The same wholesaler also reported buying more service center inventory than normal as a way of keeping their inventories low and costs down.

Prices were reported by one of the service centers on the call as being of a magnitude not seen since the 2008-2009 Great Recession. They reported that the combination of cheap foreign imports and the lack of buying at the mills (placing new orders with the domestic steel producers) is what has been really driving the reduction mill pricing.

The service center told those on the HARDI call, “I guess when you really look at things, most of us [wholesalers and service centers] got comfortable carrying inventory again, and until those inventories fully correct, and until we can have these imports subside we will continue to face dollar pressure on pricing and devalued inventory.” He went on to pose a question to the wholesalers, “We need to think about in coming months do we go long on inventory in face of price volatility or do we buy short from a supplier that helps you better your steel investment?”

The wholesalers have been amazed at the level of decline they have seen on galvanized steel which was pegged as having base prices in the low $30’s range. One East Coast wholesaler said, “…You have to go a long ways back to find a base that low. It’s hard to believe it is going to stay there for too long before it trends upward. Something will happen to cause it [galvanized steel pricing] to trend upwards.”

The issue of commodity prices having reset around the world was discussed. Iron ore, oil, scrap and other commodities have dropped by 50 percent or greater over the past twelve months. SMU posed the question if galvanized base prices would rise over the $35.00/cwt base price level anytime soon?

One of the Southeast wholesalers pointed out that the galvanized base prices bottomed during early 2009 (June 2009 $22.00/cwt base). Other than that there were only a few months over the last ten years where galvanized base prices were below $30.00/cwt. He said, “I know steel market has changed but these steel mills have consolidated and they have to make money. So, I hope we are near the bottom.”

From a central plains state we heard one company say, “don’t know if it’s the new norm, I don’t think you can ignore ten years of history.  Pressures of union and steel workers and you already saw gas go up in the last month 30 cents /gallon.  Maybe the new norm is not 40 some cents but I think it is going to be around 30 cents.”

A question was raised about the possibility regarding dumping suits being filed against foreign steel. No one on the call had any idea if such a suit would be filed or, if it would be successful if it were filed.

One of the service centers told the group that some of the distributors have to be questioning some of the buying decisions made on the steel arriving right now. “Have to admit the reality is we made some decisions we are questioning right now. Moving forward, how do we best position ourselves to minimize that risk so that we can react in any market?  We have to get back to what we know, get back to fundamentals, realize things that happened in the past, they have been stable in the last two years, don’t lose sight, it could happen again.”

A question was posed about how much further prices would drop before we find the bottom of the market?

The owner of one of the wholesalers involved on the call told the group, “I think prices will continue to fall, not as quite a rapid pace.  I think there is still room, I don’t think we’ve hit bottom yet.”

Others agreed but many of those on the call believe that it won’t be too long before the bottom is tested. “I agree,” said one of the wholesalers, “It won’t stay there long and before long there will be a big spike up.”

A wholesaler executive told the group that they needn’t worry too much about hitting the exact bottom, one thing about the bottom and the top.  “The bottom is a lot less painful than the top. I have been on the other end, when we think the prices are going to go up and then the bottom falls out… At least this time whenever it turns around your prices are still going to be okay.  Someone may get a better deal than you, but it’s not that painful going up.”