Steel Mills

HARDI Wholesalers Comfortable with Their Inventory Positions

Written by John Packard

This morning, Steel Market Update participated in the monthly HARDI galvanized steel conference call. Each month HARDI hosts a conference call amongst the wholesalers who supply galvanized sheet and coil to the mechanical contractors who are producing the duct work and air handling systems for both residential and commercial construction.

We discussed in the previous call that there have been two $20 per ton ($1.00/cwt) price increase announcements on flat rolled steels. One of the increase announcements was made in late April and the second was in the mid-June time frame.

What has changed since then is US Steel announced a $40 per ton price increase on July 7th. None of the other mills have followed that increase and SMU mentioned during our comments on the call that one of the domestic mills considered the US Steel announcement as being nothing more than a “catching up” of the prior announcements made by all of the other mills.

The group discussed the lack of pricing momentum to this market, in either direction, up or down.

The majority of the conference call was focused on demand related issues. SMU was quite curious to see if the HARDI wholesalers were seeing any signs of strength or weakness when it came to their market demand and galvanized steel products.

One of the wholesalers in the Southeast reported, “In terms of demand, last time we talked we had a good June, demand was great. Then with the holiday [4th of July] it slowed down. The first week and a half of July were a little slower. Then it picked up for a good bit of last week but by the end of the week it seemed quieter out there. I don’t know if it’s the timing that we are seeing from most of our customers, but it seems quieter today, certainly quieter than June, and of a few days ago.”

This same wholesaler was calling for “decent and steady” business going into the 4th Quarter 2015.

Out of the Midwest we heard from a wholesaler, “We had a record June. Things are decent now. I still have some concerns, we presold a lot of steel and I still have some concerns those presales may impact our demand and business a little going forward. However, we are on a pretty good pace this year. While our customers today don’t have as strong a backlog as I would like, all of them are relatively busy right now and it certainly has been better than it was last year.”

A wholesaler/manufacturer located in the Plains area of the country told the group, “We are getting rid of higher priced material and transitioning to better priced material.”

From the Mid-Atlantic are we heard from one of the wholesalers, “We haven’t had any great months, it has been strong but not in record territory. Union shops are struggling for work, they have no backlogs. There are over 450 men laid off in the union status, that is pretty much unheard of in July and August in this area. It is not dead by no means, but certainly not where it should be for this part of the country….”

One of the larger galvanized service centers on the call spoke about the need for inventories to come down and that the steel ordered in April and May at cheaper prices is now hitting the floors of the wholesalers and service centers. “We are pretty comfortable with our inventory. What I am hearing from all of you is that people have more inventory but that has to do with demand. At the end of the day, as [name removed] says, he is happy with his position. I think many people are saying okay we may have more inventory than we want but it was bought at the right price. Which leads me to believe the consensus is there is not much of a down side. I’m not saying there is much of an upside today. From a fundamental standpoint, nothing points that way.”

From Steel Market Update perspective we heard from the service centers (as opposed to the wholesalers and I will explain the difference in a moment) on the call that their business is relatively “flat” at this time. There continue to be competitive pressures which are holding prices in check (not going up) but at the same time prices are not dropping in the spot markets either.

The wholesalers are the companies who directly supply the mechanical contractors galvanized steel but also A/C units, furnaces and other materials which are installed into a residential or commercial buildings. The wholesalers on the call appeared to be a little more upbeat than the service centers as demand has been at “record” levels in some regions and much improved in others.

With their orders arriving that were placed in April at the bottom of the market (and many of the wholesalers bought heavily at that point in time) they seemed to be comfortable in their inventory positions as at least not being “out of the money” and able to be sold for a profit. We did hear one complaint from the Mid-Atlantic region but otherwise the issue of unfair competition or squeezed margins was muted compared to past conference calls.

All in al, Steel Market Update left the call under the impression that the wholesalers were doing better than the service centers on the call and that demand levels were improved or improving and most of those who spoke up on the call (other than in the Mid-Atlantic section of the country) were mildly optimistic about their company’s prospects going into the second half of the year.

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