HARDI Wholesalers Report Ultra Competitive Market

This month’s HARDI conference call revealed steel is fairly easy to get at this time. The HARDi members reported short lead times at a number of steel mills that supply galvanized steel. Lead times were reported to be as short as four to five weeks.

One of the wholesalers on the call reported, “Both mills we are working with are pushing for additional tons and willing to give additional reductions for additional tons.” Service centers and mills are both reducing prices, he added.

The wholesalers who spoke this morning reported demand as being good, but most found the tonnage of galvanized steel sold to be flat. Prices are sliding, said SMU publisher John Packard. A number of mills are reported as trying to maintain their $40 base price as the bottom of their range.

A wholesaler on the east coast said, “Prices at mills are attractive but not that attractive. Sales are fair and competition is relentless. Everyone has a mentality that prices will keep on falling but certainly mills are hedging against that. I think we could have a panic situation in 60 days if things don’t straighten out some.”

A major galvanized service center noted that although inventories are down, MSCI service center shipments of flat rolled steel on a ton per day basis are at levels not seen since 2014. He added, “Overall strong shipments per day in April with strong tons on hand right now, should equal tight inventory levels moving forward.”

Even so, the MSCI data just released indicates an increase in the number of month’s supply at hand at the U.S. flat rolled steel service centers. The new number is 2.3 month’s supply versus the 1.82 month’s supply reported at the end of March.

Pending trade policies out of the Trump administration are creating uncertainty about prices. The Department of Commerce/President Trump self-initiated Section 232 investigation on steel and its relation to national security will have public hearings on May 24 with SMU publisher John Packard suggesting a possible determination in July based on the article just produced by trade attorney Lewis Leibowitz, which he advised is available on the Steel Market Update blog for anyone to read. A previous Section 232 investigation in 2001 found that iron ore and semi-finished steel did not have national security implications and was dropped. A wrinkle in the latest investigation may be the definition of national security. President Trump and the Commerce Secretary may be expanding it to include not just the use of steel for ships and bombs, but the security of the U.S. nation’s industrial base.

The group also discussed the recent circumvention suit alleging steel from China is being shipped to Vietnam for transformation before export to the U.S. The preliminary decision is expected in the next 30 to 60 days and a final ruling is due on September 3rd assuming that there are no extensions. The decision could be a game changer if it is determined that significant transformation, and thus the country of origin, doesn’t change when hot rolled steel is made into cold rolled or cold rolled into galvanized.

John Packard reported to the group, “Zinc prices are also falling, down to $1.14 per pound today on the Kitco site from the high of $1.30 a few weeks ago. A decrease in zinc prices may cause a rollback on extras if it continues to slip.” There have been two adjustments to raise the extras charged by the domestic steel mills to put zinc on steel to make galvanized since the 4th Quarter 2016. The wholesalers were warned to keep their eyes on the value of zinc in the coming weeks.

A wholesaler in the Midwest said, “Our steel demand is not that great. Our steel sales in dollars are flat, the pounds sold however are down 22 percent year to date, through April. May is running much stronger, we are up 14 percent in May over first four months as far as sales and demand. The bulk of demand is down in 60 inch and 5.394 coils, the sheets are flat. Without steel our sales would be up 8.6% but with steel our sales are up only 5.2%. So far this year things are flat for us on the steel side. If the section 232 doesn’t come in, I feel that, and this is just a feeling, that things are going to continue to kind of ratchet down. Hopefully not fall out of bed price-wise, but ratchet down some.”

A Southeast wholeser said, “Though our customers are relatively busy we have seen our prices really drop and it seems like the price of the contractor right now is right around what our incoming prices from the mills are. I think from a sales person perspective the fear of pricing dropping, that fear is greater than the allure of prices moving up. And they don’t know any gray areas either, prices are going up or they are going down. I think the mentality up there is because of all the uncertainty and prices are dropping. I hope everyone doesn’t over react to it and jump on bandwagon and we all lose.”

One caller summed up the current business conditions: “It’s a sticky situation right now, kind of muddy and kind of nasty.”