HARDI: Lead Times Dip, Some Spot Availability - But Demand Still Strong

Although some larger commercial construction projects have experienced delays, HARDI members noted that warehousing demand as well as bioscience, medical and education building, especially in the Northeast, have been increasingly strong. This dynamic is creating a bit of a backlog in project start dates that might set the stage for demand to intensify later in the fourth quarter and early 2022.

The wholesalers on the call were unanimously running their inventories lean, choosing to work primarily on contracts despite a slight rise in spot availability. Base prices for galvanized steel have increased by more than $90 per ton ($4.50/cwt) in the past four to five weeks, causing wholesalers to remain on the sidelines when it comes to spot volumes. “We’re not jumping on anything right now. We’re only taking what we believe we can sell. We don’t want to assume the risk unless we can pass the tons off,” said one source.

Michael Cowden, senior editor of Steel Market Update, said that prices for flat rolled have risen at an unprecedent pace, almost at a straight line up for a year. Galvanized is no exception. SMU puts the current base price for galvanized at $2,070 per ton ($103.50/cwt), nearly doubling the $1,085 per ton mark seen at the beginning of the year and more than tripling the 2020 low recorded last summer at $640 per ton.

Lead times have eroded slightly, Cowden noted, from an excess of 13 weeks in mid-July to approximately 12.5 week recently, according to SMU data. Despite these pricing dynamics, industry sentiment remains near all-time highs. But buyers and wholesalers seem to be more watchful of late. “Lead times across flat products have come down, and that is meaningful,” he said. “It’s fair to say that we have taken a bit of a pause and we may be at an inflection point, but we need to keep an eye on the impact of Hurricane Ida and how it could affect steelmaking.”

One point of concern was the broad chasm between overly bullish mill executives and excessively bearish market analysts at SMU’s Steel Summit last week. The sentiment disparity has caused service center buyers to remain extremely lean when it comes to inventories, especially in the near-to-medium-term. Many are afraid of the kind of inventory overhangs they had in 2008 and 2009. “No one wants to build inventory levels at these prices,” said a member. “We’re taking it slower and trying to mitigate any possible risk, because it’s not very clear where things are going.”

Although some mills have been offering small additional spot volumes, and lead times have edged down slightly, one member said it wasn’t a marketwide trend. “From slab-dependent mills, we’re still seeing two- to three-month delays,” he said. “That’s where most of the crunch is coming from right now. EAF mills are the ones that have improved some.”

“Mills in some cases are slowly improving on delivery dates,” said another. “I’m not saying that they are caught up by any stretch, but we’re starting to see a little improvement on delivery status and material landing.”

During the call, HARDI members noted that the current inventory approach might only extend the present price cycle, but agreed that a moderate price decrease and lead times coming in would be a best-case scenario. “I expect a soft landing on prices,” speculated a member. “I expect we’ll see a float down and not a collapse. Despite a natural easing off or the engine cooling on these prices, there is demand and there will continue to be demand for longer stretches.”

Though imported steel is significantly cheaper, members said they are hesitant to seek out foreign material due to growing logistical concerns and port delays. “Foreign offers are there, and they are lower,” said a member. “They’re certainly catching the eye, but the logistic delays at ports and on the ground don’t make it as viable as you’d think.”’

“There are still foreign offers for this year,” said another. “We’re keeping an eye on it, but it’s not enticing because of port delays and backlogs on material releases.”

In a flash survey of the HARDI members on the call, the tone certainly shifted a bit from a month ago when nearly all predicted galvanized steel prices would rise by at least another $20-80 per ton ($1-4/cwt) over the next 30 days. In today’s call, just under 70% believed prices would rise by at least another $20-40 per ton ($1-2/cwt), while more than 20% predicted prices would remain flat over the next 30 days. When it came to anticipating the direction prices would go six months from now, nearly 30% believed they would stay flat, while nearly 40% anticipate a correction of at least $80 per ton ($4/cwt). One-third of members surveyed anticipate prices will begin to fall in January 2022, while another third believe prices will fall in February or later.

Cowden noted that some price and inventory normalization is not necessarily a bad thing. “People can restock to a certain extent now, which wasn’t the case earlier in the year when it was a scramble to locate steel units. I will be curious to see what’s on the horizon,” he said. “Despite some of these concerns, price gains slowing, lead times slipping, and inventories maybe growing – let’s not lose sight that this is hardly bad times for steel.”

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 David Schollaert, David@SteelMarketUpdate.com