Buyers Sentiment Continues Negative Trend
Jul / 01 / 2009 -
Buyers Sentiment Continues Negative Trend
Latest Buyers Sentiment and Future Sentiment readings and explanation
Buyers Sentiment at -42.2%
Since November 2008, Steel Market Update has measured what we call “Buyers Sentiment” or the attitudes of both buyers and sellers of steel about their company’s position in the current economic environment as well as what their attitudes are about their company’s position looking into the future 3-6 months. Since November, our readings have been in the negative ranging from -85.4% on March 9, 2009 to this week’s -42.2%. This week’s -44.2% reading is a slight improvement from the -44.5% measured on June 17th.
Any reading below -10% represents a negative Buyers Sentiment about their company’s current position and the lack of growth compared to expectations.
Steel Buyers and Sellers Struggle with “Normal”
Many in the steel industry are struggling with “normal” or perhaps more accurately would be they are struggling with “new normal.” One of the key questions in the SMU market survey is one where we ask those taking our survey how they feel regarding business conditions as they exist today. In the multiple choice answers we ask how things compare to “normal” and many who respond to the question have a problem with the word and interpretation of “normal.”
I have intentionally been leaving the word in the answers waiting for the steel community to come to terms with what is now “normal” in their business. Is normal a comparison with past sales or tonnage volumes? Is so, what year is “normal” surely 2008 doesn’t fit into a normal steel year – does 2007, 2006…or do we have a “new normal” which is in the process of being defined?
Conversation with a Manufacturing Company
I discussed this exact issue with a manufacturing company manager over the past couple of days since the survey first came out. The discussion started when the manager, who I have known for many years (although they were not a buying account of mine when I was selling steel), left a comment in this section of the survey questioning my use of the word normal.
I responded back to this individual much the same way as I did above. I understand part of the issue is to first deal with what is now normal and then base your response from there.
The manufacturing manager came back to me with the following:
I’m in the same camp as those that don’t know what the new normal might be, so judging normal is a bit difficult under the circumstances.
I suppose I can put it this way….
Our business is up for each month of this year……but each month of this year is well down from the same month in the previous year….but each month of this year is also in apparent tandem with last years business cycle…….in other words, we are up because of the normal building cycle, not because business is improving. If business were actually improving we would be seeing the % gap shrinking between the same month last year and this year…….that is not happening…….it’s just about maintaining.
So it begs the question……..what is normal; and how do you judge if business is improving or declining from normal levels?
This dynamic by itself is what makes the survey question difficult to answer.
To which I replied: “Since I am trying to gauge sentiment with this question – are you happy about business conditions in your company right now?” To which the manufacturer responded, “In a word, no….”
I then went on to ask: “Is the following statement true or false – since you are not happy with current market conditions – then you (and other management at your company) at not prone to hire more people, spend money on speculative inventory, expand your building, etc?”
The manufacturer responded, “Correct on all accounts. We are still right sizing our workforce and are still not complete with the ultimate re-organization. We are in austerity mode regarding spending. We are only locking up inventory that we have customer pricing commitments to keep."
Many other manufacturers, service centers and even steel mills (based on Dan DiMicco comments last week in New York) are still confused about what is normal. This is why 72.7% of those surveyed this week told SMU they are not able to forecast their future steel needs. You can’t forecast needs if you don’t know what to expect for future business – and, if you are unable to determine what the future holds sentiment or attitudes about existing business conditions become negative.
Sentiment has been improving since March as some companies recognize the “green shoots” in their basket of customers. However, it appears the majority of the steel industry is still weeding out dead grass and parched earth which threaten what few green shoots they have to work with. Thus, SMU Buyers Sentiment continues to be negative as both buyers and sellers of steel products try to determine how their company can prosper in the existing steel environment.
Future Buyers Sentiment
Two weeks ago our Future Buyers Sentiment was measured at +9.7%. Our latest survey indicates sentiment about the future of the steel business and people’s feelings about their company’s ability to succeed 3-6 months out has taken a hit and dropped to -6.9%. My opinion is the decline in sentiment is most likely tied to the two price increases and the size of the second price increase which is creating new pressures on future business. What may be good for the steel mills is not necessarily good for manufacturing companies.
One of the survey questions asked was how companies are dealing with the second round of price increases announced the week of June 15th? Those who support higher prices came to 38.8%, those who are dedicated to fighting the increases equaled 29.1%, the number of contract customers totaled 6.8%; and those who were able to negotiate a lower price than what was announced totaled 22.3% and finally those who were in some way “protected” from taking the full increase were 2.9% of the total. Truly a mixed bag of results and emotions which go along with these results.
At the same time, as we mentioned above, 68.6% of the companies responding to this week’s survey believe the domestic mills will increase prices again for September. Not the best of circumstances for those companies who are trying to get out of a hole and grow their business.
