Galvanized Distributors See Cliffs' Price Increase as a Positive Sign

During their monthly conference call today, members of the Heating, Air-Conditioning & Refrigeration Distributors International (HARDI) said it’s too early to predict if Cliffs’ increase will “stick,” but said one, “I’m glad to see the major players stretch their pricing power.”

“Will Cliffs’ furnace shutdown and price increase cause a dead cat bounce? We will have to see if any other mills jump on the bandwagon before we can make any predictions. All the mills will try to pursue some type of leveling in pricing at this point,” said another.

Speaking on the call, Steel Market Update Senior Editor Michael Cowden noted that the price for galvanized steel has dropped by 26% from its peak of $2,185 ($109.25/cwt) last fall. SMU’s check of the market last week put the galvanized price at $1,625 per ton ($81.25/cwt).

Prices for hot rolled coil have been declining at an even sharper rate than galvanized, widening the spread between the two to unprecedented levels. Coated steel products normally carry a premium of $150-200 per ton; today the difference is $550. “I have trouble seeing how that’s sustainable,” Cowden said. “You don’t want to see galv prices go down too hard, but this can’t last.”

Most of the HARDI members agree. In a flash poll of those on the call, virtually all expect galvanized steel prices to decline further in the next 30 days. Nearly half believe those declines could amount to more than $120 per ton ($6/cwt). Asked to predict where galvanized based prices will be on Sept. 30, at the end of the third quarter, their guesses were wide ranging. Roughly 40% peg them at $70/cwt or higher, 40% in the $60-69/cwt range, and 20% below $60/cwt.

Mill lead times – normally a leading indicator of steel prices – are about as low as they can go, Cowden noted. “So maybe this [Cliffs] increase will have teeth. Maybe it will impact market psychology.”

Meanwhile, demand remains strong for the group of distributors. “Customers have been sitting on their hands, but some of that is starting to come back into the market,” said one exec on the call. “Customers have been testing the market, and now some of that is turning into orders. If they run themselves out of inventory, that will set the new basement on the market. HR transactional sales are pretty bloody right now, but there’s definitely room to come down more on the galv side. We don’t see prices firming until at least the end of Q1,” commented another.

“The fundamentals point to further declines. Base prices are still double the historical averages, so galv seems to have room to fall. But at the end of the day it’s all about supply and demand, and right now demand is good,” summed up one industry veteran.

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