Backlogs Worry OEMs and Service Centers

Elsasser made the remarks during a steel buyers’ panel. Other panelists were John Farley, senior vice president and chief operations officer at Tampa, Fla.-based service McNichols Co., and Mike Lerman, a president at South Bend, Ind.-based service center Steel Warehouse.

While rapidly falling steel prices grab headlines, OEMs and service centers might be even more concerned with supply-chain restrictions, rising labor costs and higher freight rates.

“Labor challenges are suppressing steel demand right now,” said Farley. “There could be a lot more demand for steel right now if we could work through backlogs.”

Finding and retaining labor is a challenge, said Lerman. “The commercial folks are forecasting a healthy increase in demand, and the operational side is trying to understand how they’ll get it done when you don’t have the space, parts, or people. And there’s excess inventory, you can’t convert it.

“The ripple effects from supply-chain and labor troubles will have greater effect on final steel demand than pricing will,” Lerman added. “There’s commercial demand. But operationally, how do we get there” to meet it?

The panelists agreed that construction demand is strong and consistent across the country. There is growth from data centers and warehousing to life sciences and healthcare. Large urban areas are seeing a boost in mulitresidential construction as well.

“Distribution and warehousing can’t be built fast enough, and that’s not going to stop anytime soon,” said Farley. “Fabricators and N-GOES expects a particularly strong year for steel demand.”

“There seems to be a theme that most industries have forecast an increase for this year, though it certainly doesn’t apply to all,” added Elsasser.

And falling prices are still a concern, especially with the resulting decline in inventory values.

“Declining steel prices and rising labor costs will present some of the greater challenges for the steel sector,” said Farley.

“It’s certainly a challenge to enforce deals when prices are decreasing, but it’s just a function of pricing dynamics” said Lerman. “It’s a challenge to ensure deals are being honored.”

“On the way up, buyers were happy to take material they had confirmed at lower levels but have selective amnesia when prices are moving in the opposite direction,” noted Elsasser. “The same pricing dynamics are still at play on a downtrend.”

By David Schollaert, David@SteelMarketUpdate.com