HARDI Members: Don’t Underestimate Steel Demand

“It’s pretty mind boggling what has happened over the last six months,” said Steel Market Update President and Publisher John Packard, pointing to galvanized steel prices that have more than doubled since late last year to the current historical high of $1,940 per ton. “Some galvanized offers have passed through the $100/cwt mark. I never thought I would see that in my career. It’s getting more hysterical than historical.”

Some analysts believe that new steelmaking capacity coming online in the second half, combined with a surge of imports, will ease the supply crunch in the U.S. and allow prices to normalize. And some forecast that prices could plummet by as much as half by the end of the year.

Meanwhile, demand for galvanized steel continues to outpace supplies, with lead times stretching to 13 weeks or more and almost no extra tons available on the spot market. Price negotiations with the mills are basically nonexistent, the buyers said, as it remains a seller’s market.

Service centers polled by SMU this month reported little erosion in demand despite the sky-high prices. About 84% of those responding to the last questionnaire said they are having little trouble passing along price increases to their customers, Packard noted. Likewise, HARDI members on the call said high steel prices have not had much effect on demand from their customers, at least so far.

“Demand remains intact for us. Our inventory is leaner than normal and not by design; we are selling more than we can buy at this point,” said one executive on the call. “I’m really surprised by the levels and timing of analysts’ forecasts. No doubt prices will correct at some point, but their predictions (of a correction) seem quicker than I expect.”

None of the executives on the call reported major projects being cancelled because of high steel costs. Some smaller projects have been postponed, which will push that demand forward to later months, they said.

A few of the wholesalers said there are some early sign of loosening supplies. “We are seeing a little bit more material available. We are seeing a few mills allowing customers to get a bit more than contract minimums. But not enough to drive the prices down yet,” said one exec.

SMU’s latest inventory analysis shows that service center inventories may be starting to creep up a bit, either because demand is starting to wane or the mills are starting to catch up, said Packard, which is another early indication that the supply crunch may be easing.

“But I’m not as bearish as some analysts about how quickly the new capacity will influence the market,” added Packard, noting that planned maintenance outages at some mills in the second half could take as much as a million tons of production out of the market, offsetting some of the new capacity. “Then again, the price of lumber corrected by more than 40% in a matter of weeks,” he noted.

By Tim Triplett, Tim@SteelMarketUpdate.com

A flash poll of executives on the call showed that virtually all see galvanized prices rising by another $1-4/cwt in the next 30 days. The majority view is that prices won’t fall until December or later. Where will steel prices be six months from now? Half expect prices to be the same or higher, the other half lower – perhaps sharply lower. In other words, steel prices remain unpredictable.

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, 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 to the HARDI member companies.

By Tim Triplett, Tim@SteelMarketUpdate.com