Steel Mills

HARDI Wholesalers Worry: Could Galv Prices See a Correction?

February 13, 2018

Distributors of galvanized steel products to the HVAC industry are concerned that steel prices could experience a correction once President Trump finally announces his decision on Section 232.

“I fear that a lot of 232 is already built into the pricing, and if the [trade action] is less than people were expecting, we could see base prices decline. I think they are really inflated right now,” said one member of the Heating, Air-conditioning, and Refrigeration Distributors International (HARDI), during the trade group’s monthly conference call on Tuesday. “I’d go further and say I’d bet on it,” added another.

President Trump has less than 60 days to respond to a Commerce Department report, not yet released to the public, that may recommend new tariffs or quotas on steel imports to protect the domestic steel industry, and thus national security. Or the president could opt to take no action at all.

John Packard, publisher of Steel Market Update, said the market mentality on 232 seems to have shifted. What once looked like a sure bet is now widely expected to disappoint, more than help, the steel market. “If Trump comes out firm, there is room for prices to go even higher. If not, I don’t think the bottom will fall out, but there could be a notable correction,” he said.

On the other hand, if the effect of Section 232 is already “baked into” steel prices, the market is unlikely to get much more of an upside boost even from firm trade action. Galvanized prices have already jumped by more than $100 per ton in the past couple months, topping $960 per ton, according to Steel Market Update.

“The market is heating up,” said one distributor, reporting healthy demand. At the same time, galvanized imports slowed in December to around 200,000 tons from the 2017 average of around 280,000 tons per month. Also helping to sustain galvanized prices is the cost of zinc, which is used to produce coated steels. Zinc has moderated a bit from its $1.64 peak but remains historically higher at around $1.56 per pound. All the major domestic mills have recently announced increases to their coating extras.

Strong demand for galvanized products has driven distributor inventories lower. Some have stocked up as prices have risen, while others have been more conservative in case of a market correction. Said one executive: “We did try to build our inventory ahead of the price increases. Now we’re in a wait-and-see mode. We made our choice, now we’re waiting to see if we played our cards right.”

HARDI members also reported modest increases in freight rates, mostly on rail rather than trucks, and some falloff in service levels as trucking companies adjust to the new electronic logs they must use to monitor drivers’ hours behind the wheel. “The new logs are putting them a day or two behind schedule, so we are missing some commitment dates,” said one distributor.

Steel Market Update participates in a monthly steel conference call hosted by HARDI. The call is dedicated to a better understanding of the galvanized steel market. The participants are HARDI member companies who are wholesalers, service centers and manufacturing companies that either buy or sell galvanized sheet products used in the HVAC industry.

Written by Tim Triplett, Tim@SteelMarketUpdate.com