Steel Mills

HARDI Members Still Optimistic About Demand in HVAC

August 6, 2019

Distributors of galvanized steel to the HVAC industry remain surprisingly positive despite steel prices that have been on the decline for more than six months. While there is some variance by region and market segment, members of the Heating, Air Conditioning & Refrigeration Distributors International generally expect solid demand for their products at least through the end of this year. Said one HARDI member during the trade group’s monthly conference call this morning: “I am trying to wrap my brain around and reconcile how it can be so good in our industry yet talked about so negatively in the periodicals.”

Steel Market Update data shows the average price for hot rolled steel has slid to about $480 per ton from levels above $900 earlier this year. The price of galvanized steel is around $670 per ton, down from $775 in mid-August. SMU’s Steel Buyers Sentiment Index has declined along with prices to a reading of +26, its lowest level since 2013. “Although still on the optimistic half of the scale, that reading shows a good deal of pessimism in the marketplace—a confluence of various factors including low steel prices, iffy demand and all the impeachment talk in Washington that is weighing on everyone’s mind,” said SMU Executive Editor Tim Triplett.

The current spread between the hot rolled price and the galvanized price, at $190 per ton, is unsustainable compared with the typical spread of $100-120. “Something is going to give, either HR will go up or galv will go down. It’s just a question of when,” Triplett added.

Sentiment among HARDI members is generally more upbeat than the consensus view. Following are a few of their comments:

“Demand is not great, but stable to good. Despite the prices coming down, it seems like we have gotten numb to it and are accepting it.”

“Our business seems to be fairly good. We are seeing some slowdowns in different locations, perhaps mostly seasonal. But we are concerned about 2020. We do expect demand to be off a bit and steel availability up quite a bit with all the new production coming online.”

“Demand is sporadic now with some customers starting to slow but others remaining busy. I do think we are in a pause right now between jobs with a number of customers, but our future demand appears to be reasonable if not fairly good.”

“We are busy as can be right now. We don’t see any slowdown through the end of 2019. It’s the beginning of 2020 that gives us a little concern. I don’t think prices will be coming up anytime soon.”

SMU believes steel prices are at or near the bottom and that the mills are poised to announce a price increase, possibly as soon as this week or next. HARDI members are skeptical that a price increase will stick.

One said he feels there is still more room for prices to decrease, noting that CRU had hot rolled pegged at $17.70/cwt ($354 per ton) and galvanized at $23.90/cwt ($478) in late 2015. “Less than four years ago we were transacting at numbers well below where we are right now. HR may be nearing a bottom, but coated may not be because of that spread at $10/cwt, compared to the historical range of $5-6/cwt,” he said.

The vast majority of HARDI members polled on the call indicated they expect galvanized prices to decline by at least another $1-2/cwt over the next 30 days.

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.