Steel Mills

HARDI Wholesalers Temper Their Views on Industry Outlook

April 21, 2015

The drop in galvanized steel pricing from the domestic mills is creating havoc at the HARDI wholesalers. As one of the wholesalers put it during the HARDI sponsored galvanized steel conference call Steel Market Update participated in earlier today, “Demand is still reasonable. My concern is that we will have a poor second half of the year. When you see price changes of eight to ten cents per pound [$160-$200 per ton] since December that is a big concern.”

A second wholesaler said, “Demand is alright. We expected a stronger April due to a rebound in weather and it has not happened. I am more tempered on my outlook than what John [SMU] is reporting from their surveys.” He went on to say that price pressure equals margin pressure.

One of the galvanized service centers who participated in the conference call was also less enthusiastic than what we have heard over the past few months. “All of us who bought inventory two weeks to two months ago found inventory has devalued, and the longer you sit it becomes more devalued. “ The distributor went on to ask if anyone wanted to take positions on steel under the current circumstances or just buy as little as they need. “It’s hard to bleed off inventory under the current conditions.”

The wholesalers spoke about the need to sell inventory at “stupid deal” pricing. One of the Midwest wholesalers responded to the stupid deal comment made by another wholesaler from the east, “Hit that one on the nail, making stupid deals, everyone is trying to get out from under higher priced inventory. We deal with steel mills and service centers and would say mills are more aggressive than service centers are. Everyone has inventory to protect….”

In the Maryland/Washington D.C. area a wholesaler reported commercial construction as “limping along” with many of the union contractors, “…laid off with nowhere to go.” This wholesaler thought there is still more lower prices to go before the bounce off the bottom.

Last month one of the wholesalers reported to the group that they had made a significant purchase for April delivery at what they felt were very good base price numbers. They reported that their May purchase, which was just made, was a surprising $45 per ton lower than April and they had fewer tons to place. “We are seeing base prices we haven’t seen in quite awhile.”

The wholesalers were concerned about the amount of foreign galvanized steel which continues to flood U.S. ports. “Another 350,000 tons [may be] coming in for April, and we thought we were at the bottom. The amount of low prices coming in is depressing. I think it will take a trade case for anything to turn, otherwise there will be more of a floor [lower pricing] before a turn-around.”

SMU told the group that they were more upbeat over the past few months during these conference calls. Was the change in sentiment due to a weakening in demand or to the lower steel prices?

We were told, “Eight to ten cents per pound is starting to get very significant.” The wholesalers same tons shipped to their customers is returning fewer dollars with ever tighter margins.

The only positive we heard from the call was one Midwest based wholesaler reported that the “non-traditional” service centers have helped drum up business over the past month. He told the group that these service centers have been telling their customers that prices are at the bottom and they needed to buy. The net result was their company received “…some fairly large orders covering their summer’s work.” The unintended consequence of the service centers actions benefited the wholesaler.

A small silver cloud from what was a less than enthusiastic crowd.

HARDI = Heating, Air-conditioning, Refrigeration Distributors International. HARDI wholesalers supply the mechanical (HVAC) contractors.