Bullish Shipp Says “Hang on Tight” for the Ride Ahead

As vice president of supply chain for Priefert Manufacturing and Priefert Steel, Mt. Pleasant, Texas, Shipp is a large steel buyer, procuring around 150,000 tons per year. And he’d buy more if he could get his hands on it, he said, in comments Wednesday during Steel Market Update’s Community Chat webinar.

Why? Demand, which so far has been unaffected by the high steel prices. Priefert has seen record sales starting last May and there is no sign of weakening in the markets it serves, Shipp said. Priefert manufactures a variety of farm and ranch equipment and operates a service center division that sells steel to other manufacturers in the Southwest serving construction, HVAC, truck/trailer and the energy markets including oil and gas, solar and wind power, among others. “The scary one for me is the oil and gas sector. They are really starting to come back. We need to watch the energy sector very closely.”

Shipp believes the infrastructure spending bill proposed by the Biden administration will add even more to steel demand, but not until 2023-24. “I think it will get signed; both sides want it. But it takes time to do the planning and engineering.”

Labor is a big challenge for Priefert. “We would take 100 workers today if we could find them and they could pass the drug test,” he said. The extended unemployment benefits as part of government COVID relief are a disincentive for people to work and have squeezed the labor market. “The free money has to go,” Shipp said. “If you can’t find enough workers in your region, you have to start looking in other regions.” Access to labor may prompt more companies to relocate or open branches closer to urban areas with a larger workforce to draw from, he said. Priefert, for one, is looking to expand, possibly including new locations, new equipment or mergers and acquisitions. Shipp expects the booming economy to lead to more M&A and more industry consolidation in the next few years.

Priefert is a customer of Steel Dynamics Inc., which will begin operations at its new mill in Sinton, Texas, later this year, and Ternium, which will soon add new production in Mexico. “We welcome the new capacity in the South. It is much needed, and can’t happen fast enough. I am not a believer in there being too much supply.”

Shipp shrugs off fears that new capacity coming online, combined with a surge in imports heading to the U.S., will oversupply the market and cause a sudden correction in steel prices. “The mills are more disciplined than in the past, which will keep prices elevated. We won’t have enough supply for the North American market until well into 2022.”

Priefert is already beginning contract talks with the mills for 2022. “If you are a believer in demand, it’s not too early to start the discussions. At the end of the day, we are planning for growth and we are going to need supply.”

Members of management team at Priefert are huge believers in hedging. “We are a large player in futures as we plan for significant growth well into 2022,” Shipp said, noting that the risk management techniques taught in the Steel Market Update hedging workshops has proven invaluable. “With the volatility we have seen, I think you will see a lot more customers who want fixed pricing. One way for us to do that is to hedge it.”

Priefert “would love to buy every pound of steel domestically, but the mills can’t meet our needs,” so the company is active in the import market. Shipp is not a fan of the Trump administration’s Section 232 “national security” tariffs, which place a 25% duty on steel imports from many parts of the world. As a navy veteran himself, Shipp believes the next war will be fought in cyberspace, not as much with guns and tanks. He does not see foreign competition as a threat to the viability of the domestic steel industry. “I believe Section 232 did its job, but given today’s limited supplies and record profits, we need to take another look at the tariffs. We are a manufacturer and we compete against imports of manufactured goods all the time. None of those finished goods have tariffs on them. The domestic steel mills should be able to compete against the foreign mills.”

Pointing to U.S. GDP growth forecast as high as 7% this year, a very optimistic Shipp concluded, “there is nothing I see in the near future that will stop this.”

To view a recording of this or past Community Chat webinars, click here.

Chris Shipp will be a speaker at this year’s SMU Steel Summit Conference which will be held in person in Atlanta on August 23-25. To learn more about our first live event in more than a year please click here.