Steel Mills

HARDI Members: Bullish on Demand, Not So Much on Pricing

April 9, 2019

Sales of HVAC products remain fairly strong in most parts of the country, but prices don’t fully reflect that demand, reported members of the Heating, Air-conditioning and Refrigeration Distributors International in their monthly conference call.

“I still think the market is fragile,” commented one HARDI member. “The mills have a lot of fundamentals in their favor—high capacity utilization, normal lead times and the [Trump administration’s Section 232] tariffs. Yet the steel base price is below where it was a year ago. It makes you wonder where the mills would be if the tariffs were not in place.”

Prices for flat rolled steel, including the galvanized sheet and coil sold by HARDI members, have not moved much in the past 30 days even though the tariffs continue to restrict competition from imports.

John Packard, president and publisher of Steel Market Update, noted an unusual disconnect in current market prices. Hot rolled, cold rolled and coated steel prices usually move in concert. Steel Market Update’s Price Momentum Indicator has been pointing toward Higher prices since the mills announced two flat rolled increases of $40 per ton in January and February.

“This month is different for some reason,” Packard told the HARDI members. Hot rolled and plate prices are declining, but the direction for cold rolled and coated is unclear. Steel Market Update changed its Price Momentum Indicator to lower for hot rolled and plate today, and to Neutral for cold rolled, galvanized and Galvalume. “The capacity utilization rate is pretty high at the domestic mills at over 82 percent—closer to 90 percent for flat rolled. With imports constrained, you would expect prices to be going up. I’m scratching my head,” Packard said.

Despite the positive demand, most mills are flexible on galvanized pricing, but only to a point, reported the distributors. “The mills are willing to negotiate off target numbers, but have a very firm floor. They are only willing to go so far,” said one member.

“I am concerned about overcapacity,” commented another, pointing to the mills’ high utilization rate. “I think the mills are shooting themselves in the foot. That puts a cap on near-term pricing. Those of us in the construction business are heading into our stronger period of the year. Yet I would be surprised if prices move up much, just because of the overproduction. And if things get soft, we could see some price decreases.”

Current foreign offers on galvanized are unattractive and certainly not worth the risk, added a few others.

In a quick straw poll, two out of three members on the call said they expect galvanized prices to be about the same 30 days from now. Most of the others predict a slight decline.

“Demand is steady, prices are flat, which is OK for now,” concluded one executive. “But this thing could turn one way or the other quite quickly,”

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.