Steel Mills

HARDI Monthly Galvanized Steel Conference Call

Written by Sandy Williams

Once per month HARDI* wholesalers conduct a galvanized steel conference call so they can better understand what is happening in the broader markets as they deal with steel pricing, demand and inventory issues. The HARDI monthly call was held on Wednesday, November 9, just one day after the presidential election. Not surprisingly, the future of the steel industry under a new administration was uppermost in everyone’s thoughts. In fact, many on the call seemed to be in shock as the normal “chatter” was not forthcoming. Steel Market Update publisher, John Packard, was called upon to supply his insights into both the election and what has been happening with steel prices since HARDI’s last call one month ago.

Steel Market Update publisher, John Packard, who has participated in the HARDI conference calls going back to his Winner Steel days (now called Sharon Coatings), was asked to provide his insights into how the election was won by President-Elect Donald Trump and what affect it may have on the industry.

Packard told the wholesalers and manufacturers on the call that at the Steel Market Update conference last August in Atlanta, attendees participated in poll on who would be president. Forty eight percent of those responding said Trump would be president while only 22 percent said Hilary Clinton would prevail. “So I guess our conference was one of the first ones to get it right,” said Packard. “Personally, I don’t know if I was a believer at the time, but I was surprised by the strength of Donald Trump with the steel group we had that was mostly steel executives with college degrees.”

“Regarding how it is going to impact the steel industry, you know, he won because of the Rust Belt. He won because manufacturing companies have left, steel companies have shut down, and because of workers who used to make good wages in manufacturing jobs that aren’t there anymore. And so I think that he has to do something for the steel and manufacturing communities, and he has a Republican congress to go along with it. Whether or not everybody is of the same mindset will remain to be seen.”

One of the advisors on the Trump team is Dan DiMicco, the former CEO of Nucor, said Packard. “I think Trump is going to be pro steel, which means manufacturing companies and wholesalers are probably going to pay more for steel.”

The conversation moved on to trade and the circumvention initiation just announced by the U.S. Department of Commerce. You can read about the initiation of the circumvention cases on cold rolled and galvanized steel by the Department of Commerce on the SMU website, but one of the details of the case was brought to the attention of HARDI members on the call. The acceptance of new terminology regarding transformation of steel may cause “shock waves across the world,” commented Packard. The circumvention case hinges on whether hot rolled steel is significantly transformed when turned into cold rolled or galvanized steel, a tenet that has been accepted by the global steel community since 1988. The DOC has agreed with U.S. domestic producers that the majority cost of cold rolled and coated steels is the substrate itself and the value of it is not significantly changed by the conversion process. The change in terminology may result in many more countries who use Chinese substrate to be targeted with circumvention suits by the domestic mills.

The final HARDI call discussions were about pricing, inventories and demand. A round of price increases was led by ArcelorMittal on Monday increasing minimum base price on galvanized to $740 per ton, or a $37 per cwt base price. One of the things pushing price increases, said Packard, is rising commodity prices for iron ore, scrap and coking coal. Lead times have moved out and with inventories low, service centers are buying more steel. Demand is the question mark for 2017, said Packard, with end of the year contract buying going on and contract negotiations into next year.

Most of the HARDI member on the call said demand has been average or okay.

One of the Southeast wholesalers said, “From a demand standpoint, I would say the past two months, September and October, have been okay. Reasonable, slightly below average but not earth shattering in terms of volume of steel sold. I would say demand has been average. I would expect as we are in November moving to December we will see an uptick in demand somewhat due to these price increases. We will see in December a lot of times our customers will place a year-end buy to hide some profits and whatnot. And they have even more ammunition now with these increase and sort of the thought that there will be additional increase. So I expect a demand uptick toward the end of 2016, still pretty cloudy on 2017.”

This same HARDI caller complained that with higher priced steel on the floor they have taken a margin squeeze.

A Midwest wholesaler told the group that their demand “over the past two months has been okay, slightly below our average demand. For December we expect an uptick in demand due to the price increases prompting many to make an end of the year buy. 2017 outlook is cloudy.”

“The forecast is good for region although it is nothing to write home about unless we get some traction on the increases and people start pulling forward some material,” said a mid-Atlantic wholesaler.

Packard note that MSCI sees inventories on flat rolled below 2 months, especially on galvanized, “which is very, very low.” Information from SMU surveys shows inventories are balanced to slightly low, depending on the particular company and products they are selling.

One of the wholesalers on the call was concerned about whether or not prices will continue to escalate. “Part of it may stick, but I don’t think there will be a huge escalation toward the $40 base rate.”

Spreads between hot rolled and cold rolled/galvanized are currently $10-$11 when they are traditionally closer to $5. The spread began because of strong demand for cold rolled and galvanized while demand was weak for hot rolled. As demand has increased for hot rolled recently, some mills are getting more than the $26 base that ArcelorMittal asked for in its price increase, said Packard. Margins will more likely narrow by hot rolled numbers coming up as opposed to cold rolled and galvanized prices slipping down. “I don’t know if it will get back to the normal $100 to $140 spread versus the $200-$220 we are seeing right now, but maybe that spread gets down to $150 with hot rolled coming up as opposed to galvanized moving down.”

Packard said he is bullish on the market for three reasons: 1) the mills have done a good job of restricting the amount of domestic and foreign steel put into the marketplace; 2) the government will be very pro steel, and 3) demand has been decent and should improve as we move into 2017. “Unless something tells me something different, Alan Beaulieu said 2017 is expected to be better than 2016 in the construction market, and if that is indeed the case, that is going to mean there is going to be more galvanized steel used in construction next year than there is this year. That is good news the steel market, the steel prices and the steel mills.”

*Note: Steel Market Update participates monthly in the steel conference call hosted by HARDI (Heating, Air-conditioning, Refrigeration Distributors International) which is dedicated to a better understanding of the galvanized steel market. The participants are wholesalers, service centers and manufacturing companies who either buy or sell galvanized sheet products used in the HVAC industry. In December SMU will participate in the HARDI annual conference which is being held in Colorado Springs, CO.

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