Steel Mills

HARDI Wholesalers Expecting Flat First Half with Stronger Q2

Written by Sandy Williams

Steel Market Update participates in a monthly steel conference call hosted by HARDI (Heating, Air-conditioning, Refrigeration Distributors International). The call is dedicated to a better understanding of the galvanized steel market. The HARDI wholesalers are responsible for the supply of sheet steel and coil as well as other products to the mechanical contractors involved with residential, light commercial and commercial construction.  Demand and price trends were the topic of the January 17, 2017 call.

Most of the wholesalers agreed that demand and business conditions were favorable at the end of 2016. Moving into January and the first quarter, business is expected to be around historical averages with increase in activity in the second half of 2017.

The galvanized steel committee last spoke at the HARDI annual conference in Colorado at the beginning of December. At that point there had been three price increase announcements made by the domestic steel mills. Since then, there have been two more announcements. Transaction base prices on galvanized moved from $38 per hundredweight (cwt) to $41 per hundredweight according to the call’s moderator.

The new target base price for galvanized is $42.50/cwt-$43.00/cwt based on the recent price announcements.

Part of the justification for the price increase was due to higher scrap prices and an increase in zinc prices to $1.23 from $1.15-$1.18 a month ago.

One of the HARDI participants said, so far, he has seen little evidence that service centers have reacted to the most recent mill increase.

Said one caller, “It is pretty typical of what we’ve seen in other sharply rising cycles; you just have a lot of people who are selling mostly on floor costs as opposed to their replacement cost. However, they tend to move prices up a little bit slower and maybe even more drastic. Where one week they are selling at X price and the next week it is up 4-5 bucks cwt, which is a pretty sharp rise.”

One of the wholesalers commented, “I think it will be higher highs and higher lows for this year. I think the consolidation in the industry, the trade cases, the [lack of] imports, and the entire dynamic you guys are describing will prevent things from falling back too far. The mills will keep making money. But at some point the momentum wanes and the cycle continues. It is just how high does this sucker get to…”

Another caller agreed, “Regarding the higher highs, one of the big difference this time around it took off at a fairly high rate to begin with so I think the highs will get into the nosebleed territory pricing wise.”

One Southern service center said, “I think it is a fairly healthy market. January is maybe equal or a little above our average what we are seeing out there. Lead times are strong, the [indexes] seem to be creeping up, fairly flat but actually still on the rise, and we are looking at that. As far as pricing we are very cautious of raising [prices], trying to keep stable for our volume, but I do see an increase coming in February.”

An Eastern distributor said January demand looks similar to fourth quarter and they are not “extremely bullish on demand” for the first half of the year. “I would say that the landscape has become more competitive as everyone’s inventories that they placed early on in the cycle have begun to arrive. And momentum and seasonality has waned a little bit so it feels a lot different than it did about 4-6 weeks ago. Lead times continue to be extended and we still are net bulls on the horizon and we are doing what we can to prepare our customers for what is likely to be a real debt net inflationary year on the books for them moving forward.”

General consensus was that galvanized inventory was good, without many holes, and material can be sourced easily.

A Midwest service center noted that although steel mill capacity may be at 70 percent, coated capacity is running over 90 percent without much capacity waiting to come back on line. Although inventory, is important, demand and the US dollar are two indicators that need watching.

Said the caller from that service center, “I love hearing everyone talk about demand because demand and the US dollar are probably two of the biggest indicators we have to be wary of in the first half of this year. Overall demand, because that is going to dictate us being able to move inventory and be have terms. Bu the US dollar, if it gets too strong, it is going to keep us and prevent us from exporting scrap, and then drive our scrap market down, it is going to allow other countries to import, maybe even in some cases those that have tariffs against them from the trade cases, that will offset some of it for those really impacted by tariffs, like China. Those are some of the things to look at. Overall we are still supply constrained as a market.”

A manufacturer/distributor in the West commented that right now customers for coil and flat sheet are buying what they need without taking positions. Part of the problems is contractors who are unsure when booked projects will begin. “Many contractors said they have a very strong booking for this year but a lot of it depends on when those jobs are going to break loose. I think that will be the driving force one way or another. If demand picks up from a project standpoint, and they all hit at once, that could really put some additional pressure back on the mill.

Some unusual foreign offers have been coming in noted some of the HARDI participants.

“You could have knocked me over with a feather about three weeks ago. I actually saw a Vietnamese offer that came in,” said one participant. “I have also seen some foreign offers out of Italy as well come in. Not great pricing, but enough to give it a flavor test to see what is actually there.”

A Kansas distributor said, “We are seeing some kind of strange ones, we’ve had some come in from Egypt. It kind of scared the heck out of me on that one. And there are some Middle East that we are still seeing, and India.”

The wholesalers as a group were concerned about their mechanical contractor customers using too low a price in their cost calculations. One wholesaler told the group, “We have to prepare our customer base as to what could happen. The challenge [to the wholesalers] is driving the message to them.”

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