Steel Mills

Galvanized Wholesalers Report They Have Begun to Buy Again

March 24, 2015

This morning Steel Market Update (SMU) participated in the monthly galvanized steel conference call hosted by HARDI. The conference call is for those HARDI wholesalers who sell galvanized sheet and coil to the HVAC mechanical contractors around the United States and Canada.

Since the last conference call held during the later days in February, galvanized steel spot prices (mill) have declined approximately $25 per ton according to the Steel Market Update index. However, as one of the call participants put it, “There is less free fall in March in pricing from what we saw in January and February. There is a little more discipline from the mills. They are asking for bigger tons in order to entice someone to provide a little better price.”

The crux of the conversation was focused on these items:

1) Demand continues to improve with most on the call labeling demand as “good” with the exception being those located in the New Jersey and Washington, D.C. areas where business was called “tepid at best” and the Canadian companies who are suffering from currency issues between the Canadian and U.S. dollar.

2) Steel Margins continue to be squeezed. Service centers are over inventoried and continue to dump galvanized steel at little to no margin which is squeezing the wholesalers and their ability to collect a respectable return on their metal. We heard from a number of wholesalers who made comments such as, “Demand is good however, margins are still depressed.”

3) Prices are believed to either have “bottomed” or are close to a bottom. This belief is strong enough that a number of the wholesalers reported that they had begun buying inventory once again. One Midwest based wholesaler reported that they had taken a much more aggressive approach to their inventory needs for April arrival as they were able to negotiate a price for tonnage where they felt the risk was minimal. “We are never able to hit the top or the bottom of the market,” said the owner of one of the wholesalers. There was not much to lose. There was an incentive to buy bigger and we did.”

A manufacturing company associated with HARDI told the group, “We are very close to the bottom. The mills are negotiating but you can see that they are trying to fill it up.”

A large galvanized service center associated with HARDI told the group that they are seeing the mills “changing their ways.” The mills are asking for a “commitment on an order before they throw out a number. They want to know they have a solid chance [on getting the business].”

A second wholesaler located in the South believes history is about to repeat itself. He indicated that back about this time during 2009 the collapse of the market pricing ended and prices started to climb once again. His opinion was the possibility of trade action on light gauge coated steels would be the catalyst that will turn the market. This same wholesaler was not as optimistic two months ago.

The subject of foreign steel was discussed with one service center reporting that they believe the amount of “cheap imports” was slowing down as the orders decrease. They expect that we will see a reduction in imports during the months of May and June. Once the imports start scaling back then mill lead times could jump out. “Keep an eye on lead times because once it takes off it will be pretty fast and furious.”

A Midwest wholesaler told the group that one of their traders had sent them an email stating, “This is my last round of Chinese unless the latest rhetoric of anti-dumping proves false.”

The tone of the conversation within the HARDI steel group has been changing over the past 30 days as the group begins to see more requests for quotes (better demand) and they are becoming comfortable making larger buys from the domestic steel mills (less downward price risk).

HARDI = Heating, Air-conditioning, Refrigeration Distributors International