Steel Products

HARDI: HVAC Demand Softens in September

Written by Tim Triplett

Distributors of products for the HVAC sector are keeping a tight rein on inventories as pricing for galvanized steel continues to weaken. The wholesalers are seeing pressure from customers postponing orders in anticipation of better prices down the road.

“It appears customers are living hand to mouth, waiting to place any large orders until they see where the price fall finishes,” said one member of the Heating, Air-conditioning and Refrigeration Distributors International (HARDI) during the trade group’s monthly conference call on Tuesday.

Other distributors and service centers, fearful of getting caught with high-priced material, are pricing their products aggressively in some markets to reduce inventory levels. More aggressively than they should, noted a few executives. “Some people are afraid to get stuck with higher inventory, so they are selling cheaper than necessary. The market is correcting faster than the published prices, much like in 2016,” said one. “We have seen some pricing that is a lot lower than what the market could get right now,” agreed another. Added a third: “Prices have been sliding. The question is how low do they go before it sets off another restocking cycle?”

The HARDI members reported a strong August for the HVAC market, but softer conditions in September in most of the country. Lead times are shrinking and mills are willing to negotiate price on almost all steel products, except for carbon plate,” said John Packard, president and publisher of Steel Market Update. “Even though lower levels of imports are coming in, service center inventories are still in pretty good shape at 2.6 months of supply, down from about 2.8 months a few months back. So, inventories are pretty balanced, and there is nothing to fear yet.”

The Section 232 tariffs remain in effect and continue to restrict imports of flat rolled steel, including galvanized products. July galvanized imports totaled 256,000 tons, down from 275,000 tons in June. Galvanized base prices continue to slide, dropping as low as $48/cwt for the first time since March, reported Packard.

Many participants in the call expressed concern about fallout from the hurricane in the Carolinas. While most were not directly impacted by the high winds and water, they fear the recovery efforts may divert trucks to the region, complicating deliveries and freight rates in other parts of the country.

HARDI members are also keeping a close eye on union negotiations with U.S. Steel and ArcelorMittal. Workers for both companies have authorized a strike if an agreement cannot be reached. So far, both sides continue to negotiate, but work stoppages at one or both mills could affect the steel supply and make distributor inventories more critical. “The workers are not idiots. They see what Trump did for the mills with Section 232, and they feel they are entitled to a piece of that pie,” said Packard. The timing of the tariffs, which have boosted mill profits, promises to make the contract negotiations even more contentious, he added.

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.

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