Steel Mills

HARDI Wholesalers Call For Disciplined Sales Approach to Market

March 22, 2016

“Welcome to March Madness..,” is what one HARDI member company had to say during the March 2016 HARDI galvanized steel conference call held earlier today. He went on to say, “Brackets are an indication of what we are seeing – a lot of chaos out there… The [index name removed] base price is up 23 percent, zinc up about 14 percent, lead times at all mills extended, and some don’t have spot availability. MSCI levels at lowest levels since 2014. Take into consideration hot rolled trade cases which were favorable for mills especially when combined with cold rolled and coated… Domestic mill rationalization, from offshore less tons coming in, no one exempt at this point… There are fewer options than 30 days ago and much fewer than 3 months ago. Everyone needs to do one thing and make sure your purchasing and sales areas are both on the same page. There is a lack of discipline taking place out there and we need to make sure sales teams quoting out on the street are aligned with purchasing and what is happening there. Because right now it look like the market will be very strong due to supply constraints alone through the second quarter.”

One of the wholesalers out of the Southeast had said last month that he believed galvanized prices would be “range bound” due to tepid demand. “I thought range prices would be range bound but was clearly wrong. You all described the market pretty accurately and that is what we are seeing. [Name removed] you said about making sure purchasing and sales on same team and that is critical. But I still wish that we could get some of the nontraditional service centers on same page as us. And the fact of the matter is we are quoting fairly aggressively and we are still losing significant percentage of business we are quoting. Not to name names, but the momentum the mills have right now has not seemed to phase some of our competitors… It has got to at some point. I haven’t seen that [the higher mill prices] translate to the market as much as I hoped.”

The wholesalers, who supply steel and other products to mechanical contractors involved in the residential and commercial construction markets, reported extended lead times and mentioned that some of the mills are not playing in the spot markets. Lead times were referenced to be out into May and beyond at the domestic mills.

One of the service centers on the call referenced the number of service centers inquiries they were getting. “…we base the market and a lot of the spot that is happening on service center inquiries and I can tell you our service center inquiries coming through and the volume, it has increased significantly, and increases every day as we get deeper in this cycle, but we are not near the peak of this cycle. This market will be very strong through May, because for the most part lead times are all through May and companies with order books open in June are not even quoting that. And we are hearing words we haven’t heard in a long time, and everyone on this call has been through these cycles before but it has been so long since we have. We are hearing the word ‘allocation’ and hearing ‘inquiry’ and those are two phrases we haven’t heard in a long time.”

A number of the wholesalers continue to complain about “non-traditional” service centers who are selling product at, or less than, replacement cost. One east coast wholesaler reported losing a 10 coil order to another company which they admitted was another wholesaler just like them.

After the call was over we reached out to a couple of the wholesalers who reported how difficult the market was when trying to determine exactly where prices should be at any point in time. “In this kind of market your customers play games and say they have a number when in reality they really don’t.”

The wholesalers reported building inventories although one of the wholesalers we spoke with after the call acknowledged that they are space constrained and could only do so much selective positioning. They were also concerned because they believe the commercial construction markets in their area will pull back during the second half 2016.

There was no disagreement amongst the wholesalers, they were paying more for their steel and they are trying to pass those increases through to their customers. Those wholesalers that are losing orders to the “non-traditional” service center (which they attribute to be non-disciplined with sales running amok and not in tune with replacement costs) are reporting letting many of the orders go, knowing that sooner or later the service center in question may not have replacement steel.

The group also discussed the supply situation in detail and we are providing a portion of that conversation in a second article in tonight’s newsletter.