Steel Distributor Confides in SMU "It will get considerably worse before it gets better"
Jul / 14 / 2010 - Steel Distributor Confides in SMU "It will get considerably worse before it gets better"
Steel distributor discusses current economic situation and status of the construction industry and its impact
Sometimes, as journalists cover economic events, what gets lost is the suffering at all ends of the business spectrum. Hourly workers are laid off not knowing if things will get so bad that they are unable to put food on their family table. They wonder what they might have done differently to save their job.
At the other end of the spectrum is management struggling to keep their company running, trying not to have to layoff long time employees and wondering if they are just churning business instead of being able to make a decent (or any) margin. This becomes especially difficult in times of rapidly falling steel prices.
Those associated with the residential and commercial construction industries have been feeling the heat for some time. Residential construction fell into recession before the rest of the economy and has yet to pull itself back out. Most economists are pointing at late 2011 and beyond before new home construction will begin to see some growth from its current anemic levels.
Commercial construction ground to a halt late in 2009 and has been staggering ever since. There are isolated pockets of work but for the most part it has been a challenge to those who supply the construction trades in the United States.
Having sold galvanized and Galvalume steel for thirty-one years many of my old customers who I am proud to identify as my friends are associated with the construction industry. There were many conversations back in late 2008 and the first half 2009 which were very difficult as owners of these companies struggled to figure out why prices continued to drop without leaving behind a safety net. Many distribution companies struggled to survive.
Since mid-2009 there has been a rebound of sorts for parts of the distribution chain of supply. Automotive continues to be suffering but is nowhere near the dismal levels of late 2008 and the first eight months 2009. Energy, agricultural related industries and others have enjoyed the “green shoots” and are becoming re-energized. Those associated in parts of the construction segment of the domestic market are not enjoying those same green shoots and one company owner shared his thoughts with Steel Market Update earlier this week.
We are certain the challenges faced by this one company are reflective of those being felt by distribution companies around the country who are also displaying the courage and determination to fight through these tough times.
The Dark Days are Back
“The market continues to be extremely challenging, and I feel it will get considerably worse before it gets better. Demand is still lackluster at best, and I don't really see that improving. I feel that our primary struggle will be trying to maintain some semblance of margin,” the company owner began in an email dialogue with Steel Market Update.
“To me, the current situation mirrors the second half of 2008 (although admittedly not as bad--yet), and many of us will never seem to have the "right cost" (because by the time we receive the steel there will be a new, lower cost). I guess fortunately, like you, I both love the business and am addicted to it even during these very painful times--so I don't know what else I would be doing.”
He went on to explain that they have had to approach their purchases differently in order to survive the downward pricing spiral over the last six weeks. Even though their steel suppliers have reduced prices more than once recently, they are arriving at a price they feel is fair and negotiating with their vendors to try to achieve that price. He concluded by stating: "that never happens in stronger markets".
Our contact discussed his mill purchasing situation and we know from experience the owner has always been very supportive of the domestic steel mills, “We only bought 200 tons from [mill name removed] for July. Nothing yet for August, but we will make some mill purchases. We are still reducing inventory. Both mill and service center lead times are as short as anytime I can remember, so we are willing to run tight.”
He then went on to explain his reason for his comments to SMU, “I'm being extremely open and candid for your benefit John [supplier references removed] because I feel the more candid and confidential information you have, the better job you can do for the industry as a whole.”
