Steel Mills

HARDI Conference Call: We are 1 Major Outage Away from Chaos

Written by John Packard

Earlier today, Steel Market Update participated in a steel conference call hosted by HARDI. Every month the wholesalers who sell galvanized sheet and coil steel to the HVAC industry conduct an informational conference call to evaluate what is happening in the North American market.

Over the past few months we have seen the wholesalers much more upbeat about the steel market and their ability to sell into their HVAC customers. One wholesaler made the following comment just before the call ended, “This is a whole lot more fun than last year.”

The reason why the market is more fun is not necessarily related to a surge in demand but rather having the ability to begin to take galvanized steel prices higher due to the tightening in supply and the higher on-the-floor inventory, as well as even higher replacement costs.

Unlike prior months when wholesalers complained about the dumping of steel by “non-traditional” service centers, those on the call reported prices rising. Some were able to sell off of replacement costs while others continued to work off of an averaged inventory cost. Bottom line, in both cases prices were going higher.

One of the service centers spoke about the “lag” in the price increases before being accepted by the end users (in this case most end users are mechanical contractors). The service center spoke about the time it takes for the mills to announce a price increase, have it be accepted by the service centers who in turn may wait for inventories to arrive before passing on part (or all) of the increase to the wholesalers or to the end users. This can take more than a month to flow through the system, thus the lag before prices adjust to the new realities of the market.

A number of the wholesalers reported they were selling off replacement costs and not average inventory pricing. They felt with the domestic mills on allocation or controlled order entry it was wiser to sell off replacement or hold onto their inventories and let less disciplined companies sell off their floor inventory which should be more valuable in the coming weeks and months.

One of the wholesalers told the group, “We are challenging our sales staff now. We can see there are holes developing in inventories [thus making our inventory more valuable].”

A wholesaler who has traditionally been both a domestic and foreign buyer told those on the call, “The big “A” word is being thrown around [A = allocation]. We are being told here’s the price, take it or leave it. Foreign is not an option as their prices are higher than domestic.”

One of the service centers on the call told the group that there have been instances when the mills gave them price validity of one hour [place the order in one hour or the price is no longer any good]. That same service center reported trading companies approaching their company looking to buy inventory on the floor. This is a highly unusual event and speaks to the lack of supply.

The group talked about the “shift in mill mentality” as the mills look to make profits rather than just move tons. The shift has resulted in the Granite City (USS) and Ashland (AK Steel) blast furnaces being taken down in order to remove non-productive tons from the market.

The wholesalers wanted to know how long will this cycle last (remember there were some questioning the fundamentals just one month ago)?

With availability being squeezed and inventories tightening at service centers, one of the distributors on the call told the group, “We are one major outage away from chaos.”

A couple of hours later we got the news that CSN Brazil had lost their blast furnace…

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