HARDI: Business is Good, But Pricing’s Uncertain

Anticipation of Section 232 is propping up the market, observed one wholesaler. “I feel that’s what’s holding up prices. It seems like there is a lot of fragility to the market now. If there is no action on 232 and imports pick up, I’m concerned about where the market [prices] could go.”

Galvanized imports topped 200,000 tons in August for the fifth month in a row, though they have trended down in September. Trade action could quickly accelerate that downtrend, said another HARDI member, expressing the opposite concern. “We could see a massive falloff in imports. I don’t think the market is ready for the numbers they are going to see in September, and even lower in October and November.”

John Packard, president and publisher of Steel Market Update (SMU), noted there are groups that strongly favor and those that strongly oppose Section 232, which would restrict steel imports on national security grounds. “There is a political struggle over Section 232 that will probably last through the end of this year,” he said. A preliminary ruling in the circumvention case, in which Chinese steelmakers are accused of transshipping flat roll through Vietnam to circumvent U.S. duties, is expected soon.

In the meantime, HARDI members may see their price for coated steel increase due to a bump in the coating extras. The price of zinc has topped $1.40 per pound, prompting NLMK, California Steel Industries, USS-Posco and AK Steel to raise their zinc upcharge by 10 percent. Other major mills have not yet followed suit, including U.S. Steel, Nucor, ArcelorMittal and SDI. “We have a split market. We’ll have to wait and see how it goes,” said Packard. “Others may be waiting for the bigger mills to make their announcements.”

Overall, mill capacity utilization rates are stubbornly stuck in the 75 percent range, despite the favorable demand. But the mills are producing coated steel at closer to a 90 percent rate, noted another HARDI member. “They don’t have much more room to flip a switch and increase production today. If they do, they will have to pay up for their zinc.”

Most HARDI members reported inventory levels that are well matched to current demand. Stock levels industry wide are unclear, however. MSCI estimates flat roll inventories at around 2 months of supply. SMU places levels higher at 2.72 months. “There’s a big disconnect between what I am measuring and what MSCI is measuring,” Packard said. “I am seeing inventories as being fairly healthy, which means you are probably seeing competitive pressures from nontraditional service centers.” SMU is in the process of expanding its inventory data collection and analysis, he added.

HARDI members reported relatively minor effects from hurricane damage in Texas and the Southeast. “It has impacted trucking more than anything else,” said one. “In terms of infrastructure and the steel market, it could have been a lot worse, particularly in Houston, where most service centers were spared.”

Galvanized steel prices have seen little change in the past two and a half months, leaving wholesalers to ponder which direction they will eventually move. “There seems to be a lot of noise out there, whether it be caused by the zinc extras or Section 232. Lead times are still short. We all recognize the [recent mill price] increases aren’t likely to stick unless those lead times pop out,” concluded another HVAC wholesaler.

Steel Market Update participates in a monthly steel conference call hosted by HARDI. The call is dedicated to a better understanding of the galvanized steel market. The participants are HARDI member companies who are wholesalers, service centers and manufacturing companies that either buy or sell galvanized sheet products used in the HVAC industry.

Written by Tim Triplett, Tim@SteelMarketUpdate.com