Steel Products

HARDI: Prices High, But HVAC Demand Still Strong

May 15, 2018

Steel prices are way up and likely to move even higher given events on the trade front. But, so far, they have not hurt demand in the HVAC sector, reported members of the Heating, Air-conditioning and Refrigeration Distributors International (HARDI) on Tuesday during the trade association’s monthly steel conference call.

HARDI John Packard, publisher of Steel Market Update, recapped the trade events of the past month for the HARDI members. The Trump administration applied Section 232 steel tariffs of 25 percent, somewhat unexpectedly, on allies Canada, Mexico and the EU nations, treating them the same as China and other “bad actors.” It also reached quota agreements with Argentina, Brazil and South Korea. The administration has also extended its Section 232 inquiry to the auto industry, contending that imports of vehicles and auto parts also pose a threat to national security. That filing is in the comment phase through June 22, and a hearing is set for July 19-20. The president also announced new tariffs on $50 billion in goods from China under Section 301, designed to prevent forced technology transfer and protect the intellectual property of U.S. companies. The Chinese and most of the other nations have instituted, or threatened, retaliatory tariffs of their own. U.S. steel imports are trending considerably lower in June, Packard said, toward the low 2-million-ton range, down from 3.75 million tons in April.

Rising galvanized steel base prices flattened around $1,000 per ton as the market waited to see what President Trump would do ($1020 per ton as of this evening according to the SMU GI index). Now that there is more visibility on the trade front, steel prices are likely to move up again. SMU’s Price Momentum Indicator is pointing Higher, Packard said. Yet none of the HARDI members on the conference call expressed any concern about demand in their market, which is closely linked to building and construction.

“Midwest demand is still very strong,” said one distributor of galvanized steel products. “There was some slight softening in prices in May until countries lost their tariff exemptions. Mills and service centers seem to have a bit more of the negotiation power now. We are buying very conservatively at this point, riding the waves as they come.”

“I’ve heard no negative comments on projects being delayed or canceled, but I would not want to be in the building business right now,” said another HARDI member, commenting on the market’s uncertainty.

“I am seeing shops busier than ever. Larger contractors are loaded up with work through the end of the year. There’s no talk of jobs being put on hold,” said another distributor of HVAC products. He did express some concern about the financial health of smaller subcontractors who can’t pass along the entire price increase to their customers.

“We are confident in the market. One barometer is cranes in the air. We are seeing them everywhere. We are very busy,” agreed another service center in the Southeast. His company’s business model to maintain relatively high inventory levels has paid off in a market where customers are concerned that tariffs will restrict imports and cause shortages of steel. “The psychological impact of possibly not getting enough material has reduced the resistance to higher prices,” agreed another distributor.

Some are surprised that prices are not even higher. One galvanized steel buyer said he still sees the occasional deal being offered at the mill level. “Mills don’t want to appear as if they are gouging,” he said. Added one of his peers: “Usually, steel does not make the front page. Steelmakers are aware they might appear greedy” if they try to exploit the tariffs too aggressively.

The price of zinc has declined from a yearly peak of $1.64 per pound to the current price around $1.41. “But there are signs of some upward pressure on zinc. Don’t expect any decreases in mill extras any time soon,” Packard added.

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.