Steel Mills

HARDI Wholesalers Say Discipline is Key to Market Stability

Written by John Packard

HARDI wholesalers reported today that the key to this current market is to be disciplined as you go about your business. The wholesalers, who provide galvanized steel and other products to the mechanical contractors around the United States and Canada, told SMU and other wholesalers on their monthly steel conference call, that business conditions continue to be decent although many reported their customers as having pulled forward their summer steel needs during the months of April and May in order to beat the price increases.

Galvanized steel prices were reported to be stable even though lead times have shrunk and their steel mill suppliers are delivery orders early. As one wholesaler executive put it, “I would say the mills are being a lot more disciplined than the service centers. Our steel shipments have suffered a little because we have chosen not to sell strictly off of floor costs.” He went on to say, “I would like to see mills remain disciplined so things stay firm for the next month or so. I never trust the mills and it is unusual for prices to stay steady, certainly to stay steady in the $40 to $42 base range.”

This wholesaler then concluded his remarks with, “But in terms of general business it is good, but not as good as it was a few weeks ago but I am optimistic things will pick up here pretty soon.”

One of the steel service centers on the call told the group that stability at the domestic mills is not a bad thing as it “…makes everything a little bit easier for everybody.” He went on to say, “I think the market has room to go up, because if you see your replacement cost, we are not quite there yet…  If I had to forecast I would say prices would stay flat or maybe dip a little bit in October.”

A second service center also reported more discipline from the domestic mills and they reported galvanized base prices as remaining at, or close to, their 52 week highs. They reported sheet inventories out of the MSCI distributors as having dropped and when queried specifically about coated steel inventories they told the group that they had dropped from 1.67 months at the end of May to 1.471 months as of the end of June. They told the group that the 1.471 month’s supply is the lowest they have seen since they began tracking this data in January 2011.

A number of the wholesalers reported large mechanical contractors as having bought heavily earlier this year in order to cover summer needs at lower costs. SMU asked when those buyers would need to come back into the spot market to cover 3rd Quarter needs and we were told August and September. “Demand will be up again in August and September… Demand isn’t terrible but a lot of our bigger customers bought significant amounts. We had record sales in April and May and it was because of that. They were buying out [to cover summer needs]. We are not sitting on our hands but demand isn’t as robust as it typically would be if it wasn’t for this price movement.”

We heard from HARDI member companies in Colorado, Kansas and in Canada all suggesting that business conditions are good, especially for commercial construction which is a major user of flat rolled.

When asked about foreign steel one buyer who traditionally has been a foreign buyer told the group, “We are finding domestic mills competitive with Indians, at this point [they are] in fact more than competitive. We have had no problem getting material from SDI or California Steel.”

The wholesalers as a group appear to be only buying what needs they have and no one is building inventories. “No one wants to get burned like 2008,” is what one Midwest based wholesaler said.

HARDI = Heating, Air-conditioning, Refrigeration Distributors International. The group conducts a monthly galvanized steel conference call which Steel Market Update has participated in going back to our publisher (John Packard) steel sales days prior to 2008.

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