Final Thoughts

This week we saw that consumer confidence increased, the USW ratified its agreement with US Steel, and our SMU Spotlight featured Steel Manufacturers Association president Philip Bell. Lots of good things happening as we round out the year.

But it seems like everyone I talk to is focused on pricing. What’s steel pricing going to do in January? Is scrap going to go up or down? Why are partridges in pear trees so darn expensive? I don’t have answers to those questions. And outlooks are mixed.

I was reading the December edition of HARDI’s Data Driven Newsletter by Brian Loftus, and it’s notable that the HVAC sector appears to be cooling off. That’s likely a response to a slower housing market. Loftus pointed out that Lennox, Daikin, and Ferguson had different fiscal years, but their outlooks for the coming year are aligned. “We expect growth rates to continue compressing as we move through the year, driven by increasingly difficult comparables, a reduction in inflation and deterioration in market volumes,” said Bill Brundage, CFO of Ferguson during a recent earnings call.

At the Lennox International Annual Investor Day, on Dec. 14, a presentation noted that the company in 2023 would assume a high single-digit revenue increase when it comes to commercial end markets. But Lennox is also assuming that residential volume won’t be as prosperous.

Commercial HVAC sales are an important data point for steel sales, especially for service centers. But not everyone is bearish.

Associated Builders and Contractors (ABC) puts together the Construction Backlog Indicator, and there is a correlation between construction and HVAC. ABC’s Dec. 13 backlog indicator highlighted that the current construction backlog is “at its highest level since the second quarter of 2019.” (Note: Residential construction is not included in that backlog, only commercial, health care, and institutional are.) “The rise in backlog is remarkable and unexpected,” said ABC Chief Economist Anirban Basu. “A number of contractors have been reporting that their backlog has risen rapidly over the past three months, which is counterintuitive given the pervasive view that the broader economy is headed into recession.”

While we can’t look into our crystal ball and see what the future holds, it appears that building products and the slitting and cut-to-length lines that serve them could have steady business in 2023. I’m cautiously optimistic, but optimistic nonetheless.

My hope for next year is that the word “unprecedented” doesn’t get used much (and ideally not at all). It’s been a hectic two years, and I think we could all use a break from uncommon circumstances. From everyone here at Steel Market Update, we want to express our sincere gratitude for your business and your participation in our webinars, conferences, surveys, and newsletters. We hope you all have a safe, relaxing, and wonderful holiday season, and we’ll see you in 2023!

By Becca Moczygemba, Becca@SteelMarketUpdate.com