Steel Products

HARDI: HVAC Market Strong, But Steel Prices a Question

Written by Tim Triplett

Members of the Heating, Air-conditioning and Refrigeration Distributors International, wholesalers of galvanized sheet and coil products, reported steady and strong demand in the HVAC market so far in 2019, but also growing concern about the direction of steel prices. One HARDI member on the trade group’s monthly conference call today described conditions as “somewhat fragile.” The issue is where steel prices go from here.

Steel prices are in a state of flux. The mills have announced two $40 per ton increases on flat rolled steel so far this year and have managed to collect at least some. “With things firming up in the marketplace, we are seeing prices starting to move up,” reported John Packard, publisher of Steel Market Update. “Galvanized prices are definitely up. Coated steels are among of the strongest products in the market at this time.”

The benchmark price for hot rolled steel has risen to $705 per ton in the latest Steel Market Update data, while the average price of galvanized is up to $840. SMU’s Price Momentum Indicator predicts further increases in the price of steel products over the next 30-60 days.

Some HARDI members stocked up in an effort to buy ahead of the expected price increases, leaving many concerned about the Section 232 tariffs. If the Trump administration rescinds the tariffs on steel imports from Canada and Mexico to secure passage of the U.S.-Mexico-Canada trade agreement, will that cause a surge in supply and drive prices down?

“There is a huge divergence in thought on what is going to happen to steel prices over the next three or four months,” Packard said. Some analysts forecast the hot rolled price could jump as high as $800 to $900 a ton, near the peak of last year, on strong demand and restricted imports. Others believe withdrawing the tariffs could send the steel price plummeting back down to $600 per ton.

“If 232 goes away on Canada and Mexico, the market opinion is that it will drive prices lower. I am not necessarily in that camp, but that’s the market psychology,” said Packard, adding, “I don’t believe the impact will be as radical as some people think.”

At the same time, Packard is doubtful prices will spike back over $800 a ton, though some further increases would not be surprising. “This has been a bad weather year. Once spring sets in and all this pent-up demand cuts loose, with the mills already operating near full capacity, supplies could be tight.”

Demand has been steady and lead times from suppliers have lengthened, said one HARDI member. “Our inventory level is a bit higher than average based on our belief in the price increases and in preparation for the upcoming busy season.”

“The mills have made their price increase announcements and are trying to make that come to fruition. We had to make a call and purchase some inventory. Hopefully the market will have some strength and we’ll make a little money on it,” said another distributor.

Competition for sales is stiff, commented another executive. “We’re still in the ugly period at the street level. Those with inventory have the option to sell off the floor cost or the rep cost. We’ll leave money on the table sometimes and then we’ll get our socks blown off the next time. It’s a tricky period right now.”

Most expect good demand into the second quarter and perhaps beyond. “We do think this market has some legs. We just need the street price to catch up with the mill price,” said one HARDI member.

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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