HARDI Members’ Fear: What Goes Up Must Come Down

Most indicators point to further price increases for galvanized into the first quarter next year. Hot rolled prices have doubled in the past three months as supplies remain tight; raw materials prices are up including iron ore, scrap and zinc; mills have raised their coating extras; and lead times for spot orders of galvanized products have extended to more than nine weeks, according to Steel Market Update data. Yet demand remains strong in most end-use markets, with the exception of energy.

John Packard, president and CEO of Steel Market Update, said there are a number of developments in the works that should increase supplies in the first quarter and ease the upward pressure on prices. New capacity has come online recently at Big River Steel and U.S. Steel’s Gary Works. Dofasco is repairing a caster that was damaged in a breakout last month. Management at NLMK’s Farrell, Pa., mill hopes to reach a settlement with striking steelworkers, though talks appear stalled at the moment. Imported slabs from Brazil are stacked in customs warehouses awaiting release after Jan. 1, depending on how the government decides to handle quota restrictions.

Other unknowns include what Cleveland-Cliffs will do with the mill assets it acquired from ArcelorMittal USA and AK Steel, and U.S. Steel’s decisions regarding the often-speculated closure of its Granite City mill now that it has full ownership of Big River. “There are a lot of ‘ifs’ in the market now that will play a big role in what happens to steel prices next year,” said Packard.

SMU expects steel prices to continue rising for at least the next 30 days, with hot rolled possibly cresting the $1,000 per ton mark. The record for HR was $1,070 per ton in the boom year of 2008, Packard noted, dropping to less than $400 per ton in 2009 when the bubble burst plunging the economy into the Great Recession.

Conditions are very different heading into 2021, with no reason to believe that steel prices will repeat history. “I don’t see that big a change, especially because inventories are so tight. They will be important in determining how far and how fast prices travel. With inventories at just two months of supply, service centers will have to restock before the pressure comes off pricing, and that could take into February or March,” Packard said.

Few HARDI members have given serious consideration to foreign sourcing. Import pricing is not that much lower than domestic at this point, and the three- to four-month lead times make placing foreign orders very risky. Domestic prices could decline in the meantime.

The HARDI wholesalers’ optimism about demand is tempered by ongoing concerns over possible coronavirus shutdowns. One exec in the Northeast noted that Pennsylvania has some businesses on an extended three-week shutdown and other metro areas may follow suit. “We are watching the shutdowns very closely and eyeing February/March as the potential turning point for prices.”

“We are managing the material on hand and making sure we are taking care of our loyal customers. We have had orders pushed back by the mills, but we have not had to push any of our customers back at this point. We think prices will continue to climb over the next 60 days, and we will see what the correction will be at that point,” said another HARDI member.

“One nuance that no one knows is how disciplined Cliffs and USS will be with the new ownership structure. That is a new data point in this calculus. Where mills used to just rush in and warm [furnaces] up, will there be new discipline? If that is the case, we may see higher prices than in the past. I believe this has longer legs than many people thought,” added one exec on the call.

One participant commented that he had just received a quote from a domestic mill with a base price of $56.00/cwt on galvanized. He told the group he replied, “No thank you.”

Another wholesaler reported strong order activity, though his company is struggling with late orders from the mills. “It’s almost a blessing,” he added. “The more it is delayed, the more valuable it becomes [as prices rise]. I am concerned about the flipside of the coin though. When it eventually comes down, we will pay the price for the mills and their opportunism.”

Every HARDI member on the call, in quick real-time poll, predicted that galvanized steel prices would rise by more than $2/cwt ($40/ton) in the next 30 days. The majority expect a big price correction within the next six months, however, likely starting around April.

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.