Virus Picks Winners and Losers Among HARDI Wholesalers

“This is a hot spot for the virus. The governor has shut everything down and talks about not opening for another 4-6 weeks. Our business is down 30-40 percent overall from last year. The situation is pretty bleak here compared to the rest of the country,” said one wholesaler in the New York metropolitan area.

In sharp contrast, one wholesaler from California reported: “The containment measures have worked well here compared to the Northeast. Supply chains are fully intact. We are looking at up 2 percent in April.” Added another: “We have seen a reduction in demand, but it varies by market. Some areas have been hit harder than others. Our contractors keep finding ways to get work done. I’d call us cautiously optimistic.”

Most of the other HARDI members described market conditions somewhere in between. One said his sales are down 50 percent and he has had to close some branches.

Another said demand from his customers dropped by about 5 percent in March and is on track for another 5 percent decline in April. “April is not tracking as bad as we originally estimated. The government funds have provided some liquidity to the company and to employees. Margin compression is the real struggle right now. We have to make some tough decisions in large bid opportunities. I see the market continuing to soften a bit in the near term, but I do think we will see the bottom before June 1.”

“Our volume is off a little bit from the first quarter, but not that far off of April last year. We’re hearing enough bad news and cautions from contractors that we are expecting a lull in the next few weeks. I am encouraged that here in the Southeast a lot of the states are being intentional about reopening the economy.”

“We see some positives,” agreed another exec on the call. “There are different areas where the vertical markets are not down as much as anticipated. Others are liquidating inventory. Some of the larger OEMs anticipate supply bottlenecks as the market starts to recover. The mills will take care of automotive and appliance first.”

For another HARDI company, volume has declined 12-15 percent from January/February. “We’re seeing a lot of price erosion and margin squeeze. Some savvy contractors are trying to lock up a low-ball number under contract. I think we will see the market start to change direction in June. As we get into July, we will start to see price stabilization,” he predicted.

“Demand is the key. I have never seen demand decline to this degree so quickly,” said John Packard, president and publisher of Steel Market Update. “How much demand destruction is there ultimately going to be? There’s no way to know, but I am getting less optimistic as I talk with various industries,” he added, pointing to the stalled auto industry and $20 per barrel oil prices.

Lead times are a measure of demand at the mill level. Lead times for spot orders of steel products from the mills have declined by roughly two weeks compared with the pre-virus period in February. Lead times for galvanized orders averaged around 5.6 weeks as of April 17. SMU data shows that the current base price for galvanized steel has declined to around $650 per ton, down from $720 earlier in the year, as the coronavirus has taken its toll on demand.

Also an indicator of demand, Steel Market Update’s Buyers Sentiment Index has dipped into pessimistic territory in the last few weeks, registering -6 in the last check of the market. Sentiment has not been in negative figures since the market was emerging from the Great Recession in 2010. SMU’s Future Sentiment Index, in which respondents rated their prospects for success three to six months in the future, registered a more optimistic +23. “There was a sliver of hope in Future Sentiment, probably due to all the talk about reopening the economy,” Packard said.

Nearly 80 percent of the service centers responding to SMU’s last questionnaire said they are still lowering prices to their customers. Normally, that would be a sign that the mills could be expected to raise prices. But not under the current conditions. “The virus’ effect on demand will not allow the mills to announce prices increases as they have in the past,” Packard said.

Individual steel mills are reacting to the crisis very differently, depending on their products and geography. Some are holding firm, while others are aggressive with their pricing. “If other industries are as optimistic as some of you about business coming back in June or July, maybe we won’t see galvanized dip as far as $30/cwt ($600 per ton). But if your optimism proves unrealistic, we could very well break that number,” Packard said.

Polling the HARDI members on the call, nearly all expect galvanized prices to decline by another $1-2/cwt ($20-40 per ton) in the next 30 days. Their view is more bullish over the longer term. The vast majority expect the galv price to be the same or higher by $2/cwt ($40 per ton) six months from now.

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 are wholesalers who supply products to the construction markets, also on the call are service centers and manufacturing companies that either buy or sell galvanized sheet and coil products used in the HVAC industry and are suppliers into the HARDI member companies.