HVAC Distributors Reporting a Drop in Steel Demand
In their first conference call since the HARDI (Heating, Airconditoning, Refrigeration Distributors International) annual conference held in Orlando in early November, the steel committee discussed the current situation regarding steel price increases. The distributors on the call cover a large portion of the U.S. and Canadian markets.
Member companies are reporting sluggish sales as they enter their slow seasonal demand period (winter) which this year is being combined with a decline in real demand within the commercial construction market. For many years the commercial construction side of their businesses kept them going even as residential construction suffered throughout 2008 and again this year.
The commercial construction market has completed many of the jobs begin during late 2008 and early 2009 and now, with limited to no financing for any real estate related projects, new buildings are not coming out of the ground and demand for HVAC services and the related steel products is grinding to a halt (drastically slowing down).
Those distributors who purchase their galvanized sheet steel directly from domestic steel mills are reporting they are seeing the price increases out of their suppliers. Many also reported slow deliveries out of the domestic mills and the delay in getting their October and November orders is providing an opportunity for those companies to not buy steel in January and in some cases they will be covered through the month of February. Others did report making some minor purchases but only to fill holes. Not one company on the call was interested in taking a speculative position.
Demand continues to remain weak – “weaker than usual” according to one service center member who supplies sheet steel to some of the smaller distributors. One Midwest distribution company reported seeing, “No changes in demand [continued sluggish]. We are entering our slow season and we do not expect demand to move up anytime soon.” While a Plains distributor told the group, “Business is terrible. Next year will be equally challenging [than 2009] if not more so. Commercial kept us alive this year and now it is anticipated to be down 10%-15% - much of it due to a lack of financing.”
One of the distributors mentioned any sizeable inquiry creates a “feeding frenzy” as service centers and HVAC distribution companies fight over what limited business exists.
Many of the HARDI distributors feel a steel price “bubble” is being created which they feel will only last 60-90 days due to a lack of demand and the limited need to buy more steel.
Steel Market Update is a member of HARDI and has been an active participant with the steel group for a number of years going back to the days when we actively sold steel to the HVAC distributors for one of the domestic galvanizing mills.
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