HARDI: Demand’s Solid, But Tariff Action Adds Pressure on Prices

President Trump announced on Friday that the U.S. would remove the 25 percent tariff on steel imports, and the 10 percent tariff on aluminum imports, as long as its North American trading partners work to ensure the U.S. does not see a surge of steel across its northern and southern borders. Trump’s concession is likely to clear the way for passage of the new U.S.-Canada-Mexico Trade Agreement, the long-awaited replacement for NAFTA.

Canada, Mexico and Turkey will add some supply to the market, but traders tell Steel Market Update not to expect a big influx of steel. “I think we will start to get a real feel for this over the next week or two. We will start to see offers from Canada and Mexico fairly quickly,” said John Packard, president and publisher of Steel Market Update, during the monthly conference call with HARDI members. “But if they send more steel to the U.S. than they have traditionally, the U.S. will impose the tariffs again.”

HARDI members reported solid demand in the HVAC market. Most are keeping inventories lean as steel prices continue almost a year’s long decline. The price of galvanized steel has dropped by $3/cwt in just the last five weeks and is now at a base price around $780 per ton. “We are back to pricing levels we have not seen since the end of 2017, even though mill utilization rates are at their highest level in years,” which is difficult to explain, noted one executive on the call.

SMU data shows service center inventories at an average of about 2.5 months of supply, lower than in March and April, but still on the high side. So, service centers are not likely to stock up anytime soon, especially with the added pressure on steel prices from the open borders. “What is going to happen to turn prices around? Right now, I just don’t know. Everyone is a little baffled,” said Packard.

SMU’s Sentiment Index has seen a significant downturn this year. Optimism tends to track with steel prices. “The news on the tariffs will probably exacerbate the trend and cause industry sentiment to go even lower,” Packard added. Buyers’ attitudes affect their willingness to purchase inventory and make other capital investments.

“There are a lot of deals being made out there as the mills try to fill voids in their schedules—which is a surprise given their capacity utilization. I am scratching my head as much as the next person,” said one HARDI member.

“It’s tough to figure out what the competition is doing. I thought the March prices would be the lowest of the quarter, and that is not the case,” added another.

Reported one distributor in the Midwest: “Demand is stable. Contractors have work. Inventories are leaner than average, though not as lean as people might want. Everyone is negotiating, from the mill to the end user, trying to get rid of inventory. With lead times so short, at just 2-3 weeks, we are not forced into placing orders with the mill.”

“Our inventories are OK, but we are also seeing late shipments from the mills,” commented one exec. “If they would ship on time it would make things a lot simpler.”

In an informal poll of HARDI members on the call, half said they expect galvanized prices to decline an additional $1/cwt in the next 30 days. Another 29 percent predicted a $2 decline, and 14 percent a $3 decline. None expect prices to increase in the coming month.

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.