Steel Mills

HARDI: Waiting for the Market to Find Direction

Written by Tim Triplett

While business activity remains fairly strong in February, distributors of galvanized products to the HVAC industry are waiting and watching for some indication of which way steel prices will move.

Steel Market Update is, too. SMU has moved its Price Momentum Indicator to Neutral until the market establishes a clear direction. Steel prices have softened in recent weeks after three months of increases prompted by a series of mill price announcements. Galvanized steel prices have slipped to around $770 per ton ($38.50/cwt) from a peak of $800 per ton ($40/cwt) in mid-January.

SMU data shows lead times for spot orders of galvanized steel at around seven weeks, which suggests that mill order books are fairly strong. SMU’s Service Center Inventories report shows current flat rolled inventories at 2.39 months of supply, fairly balanced. “This may help temper any further price drop,” said Steel Market Update President John Packard, speaking on a conference call with members of the Heating, Air Conditioning & Refrigeration Distributors International (HARDI) earlier today. “If you are at a seven week lead time and have inventories that are a little more than two months, most companies are going to be in a position where they will need to purchase steel. They can’t sit on their hands too long.”

The spread between the hot rolled and galvanized price remains at $190 per ton, much higher than the $120 at this point last year. A lower galvanized price, or a higher HR price, would narrow the gap to a more typical spread. Also, the price of zinc has dipped below one dollar per pound, raising the question of whether the mills will lower their coating extras. “Mills like to wait two or three months to make sure a change in zinc prices is not just a blip. You distributors should be asking for an adjustment when you talk to your mill suppliers,” Packard said.

One HARDI member noted a slight softening in order activity in February versus the prior month. He believes steel prices will decline further, adding pressure to margins. “Street prices have never fully recognized the increases the service centers and the mills have tried to impose,” he said.

Stable or increasing demand and inventory replenishment should give galvanized prices some support going forward, said another distributor with a different perspective.

CRU reports that the price of galvanized steel has averaged $38.70/cwt or $774 per ton since 2011. So, the current price is near the average, noted one exec, which makes the next change that much harder to predict.

“I see a mixed bag. No one wants to go long at $39-40/cwt. That may deter prices going higher. We are just taking it week to week,” added another.

Conducting a real-time poll of the HARDI members on the call, the majority (67 percent) indicated they expect galvanized prices to decline by another $1/cwt in the next 30 days. Another 22 percent see prices remaining flat. Just 11 percent predicted a small increase of $1/cwt. Asked to predict galvanized prices six months from now, responses were all over the board, clearly pointing to much uncertainty for the first half of the year.

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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