SMU Steel Summit: Buyers Want Prices to Correct to a 'Healthy Level'

“We need healthy prices,” said Barry Zekelman, chairman and CEO of Zekelman Industries, a major manufacturer of pipe and tube. “A price of $400 isn’t healthy, but $2,000 isn’t healthy either. Everyone thinks they are a hero right now, making a lot of money, but it’s hurting our steel-consuming community and it’s making us globally uncompetitive. We can take this shock for a short period, but it needs to settle down.”

On the panel with Zekelman were Chris Shipp, supply chain vice president at Priefert, a steel distributor and manufacturer of ranching equipment, and Richard Marabito, CEO of Olympic Steel, one of the largest service centers in the U.S. All three expressed doubts that steel prices will soon see a sharp decline, as some analysts predict. “It will be a drop, without question, but it will be a reasonable drop. The new norm won’t be $600-700 a ton, it will be higher,” predicted Zekelman.

Shipp called the current steel prices “ridiculous” and said they pose a threat to the U.S. manufacturing base. “The small manufacturers who make up a large percent of the industry in the U.S. are struggling. They can’t get higher credit lines. Some won’t survive, and there is not a lot we can do to help them. This pricing is way out of line. The pendulum has to swing the other way. Four hundred a ton is not healthy for the industry, but $2,000? Come on, that’s just crazy.”

Marabito said he believes the market still has some pent-up demand and the eventual price decline will be gradual. He predicts the market will slowly let the air out, rather than pop like a bubble. “The thing that makes me feel pretty optimistic about next year is that I can’t think of a single customer who has said they are going backwards. The demand environment looks pretty good. Are prices likely to come down? Sure. But I just don’t see a collapse on the horizon.”

If the HRC price drops as low as $750 per ton, as some predict, that would be a serious collapse, he added. The panelists all see a “healthy” price somewhere north of that number. Based on a real-time poll of summit attendees, the majority (50%) expect HRC prices to level out at some point between $1,000 and $1,500 per ton. Even at $750, the price of HRC would still be more than $100 per ton above the historical average of the past decade.

Shipp called on the steel mills to consider the larger picture. “We need to work together to stabilize our manufacturing base. We need a healthy number we can all live with and prosper. And we need the mills to help us get there. Let’s keep companies in the U.S. and continue to grow our manufacturing base.”

By Tim Triplett, Tim@SteelMarketUpdate.com