Steel Mills

HARDI: Spared the Worst So Far, Taking It Day by Day

Written by Tim Triplett

Distributors supplying galvanized steel to the HVAC market report that demand and prices have remained surprisingly resilient so far, but they fear it’s only a matter of time before their business feels the full effect of the coronavirus crisis.

“Your business is going to change. We are in the very early part of that change,” warned John Packard, president and publisher of Steel Market Update, on a conference call with members of the Heating, Air Conditioning & Refrigeration Distributors International (HARDI) earlier today. “The forecast now is for a global recession. The question is how deep and for how long.”

Operations continue at the HARDI member companies, which are striving to service customers as normally as possible. Demand remains relatively strong, they said, considering the disruption to many manufacturers and contractors. All have taken steps to protect employees and customers from the spread of the virus. Most have administrative personnel working from home. Operations and warehouse staff are limiting interactions and taking precautions such as hand washing and disinfecting equipment.

“Some customers are not allowing delivery drivers into their buildings. We’ve pulled sales staff off the street and they are working by phone. Employees have the ability to work from home, but surprisingly most have chosen to still come into the office,” said one executive.

Companies need to be prepared for supply disruptions, commented another. Government entities could shut down plants. Mills whose employees get infected may be forced to close. The truck driver shortage could worsen if drivers become ill. “We all need to educate our employees to watch for abnormal orders that come in because they may be competitors or contractors trying to raid our inventory. The disruption of the supply chain looms as large as the overall economic situation,” he added.

So far, steel has been spared the worst of the fallout from the virus. Steelmakers’ order books are relatively full as the mills continue to operate at more than 80 percent of capacity. “We are not seeing a wholesale drop in prices yet,” said Packard. “In my opinion, we may see a lull in spot prices for a bit, then see them taper off. But SMU’s Price Momentum Indictor remains at Neutral. No one really knows where prices will go. We’re in the beginning of something that none of us has experienced before.”

The spread between hot rolled at $580 per ton and galvanized at $770 per ton is far wider than the historical average of $100-120 and could get worse with the per-barrel price of oil down in the $30s, Packard noted. “Oil is a major mover of hot rolled prices.”

HARDI members are not the only ones deeply concerned about the impact of the virus on the economy and steel sector. SMU’s canvass of the market so far this week shows a sharp 45-point dip in industry sentiment, to +13 from +58, its lowest reading since 2009. We will have our final Sentiment Index analysis in Thursday’s issue of SMU.

The wholesalers were warned they need to remain vigilant especially when it comes to sources of supply. Where will the wholesalers go should one of the mills they use be shut due to the virus?

HARDIComments from HARDI members reflect the profound anxiety they are all feeling:

  • “Right now, I am not seeing anything in the market in terms of manufacturing slowing down. Mill order books are decent. It has not hit our industry yet. But there are suddenly millions of people out of work. At what point will that lack of dollars start affecting our businesses?”
  • “Our business has been pretty good. There is still activity. I don’t know if the facts on the virus justify all the measures that have been taken. No one likes uncertainty, and that is what we are trying to navigate.”
  • “We placed a spot buy for April tons last week that was very similar to March. It was unnerving cutting those POs. We are not making any big purchases in anticipation of people scaling back. All the dollars taken out of the system will have to affect demand at some point.”
  • “Amazingly, business is still pretty good. The unknown is unnerving for everyone. Until the government drills down and clarifies how the stimulus money is going to help individuals, it’s just pie in the sky and people won’t feel better.”
  • “We buy on contracts with minimums and maximums and we are going to the mins on all those programs. We are making adjustments weekly.”
  • “It’s hard to see it not happening to our business in the next month. We are planning for different levels of impact under different scenarios.”
  • “Customers are calling to ask how we will move forward. They are nervous we will break the chain of material getting to them. As long as the mills keep running, we will keep marching on. But eventually, this is going to affect us all big time.”
  • “In Canada lead times are stretched out more than in the U.S. Most mills are quoting into June and July. Prices are holding up. Critically, we’re watching the foreign exchange rate.”
  • “We are taking it day by day, hour by hour, continuing to service our customers.”
  • “We all want to do our part to flatten the curve and stop the virus, but we want to be open and serve our customers as long as we can.”

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 are wholesalers who supply products to the construction markets, also on the call are service centers and manufacturing companies that either buy or sell galvanized sheet and coil products used in the HVAC industry and are suppliers into the HARDI member companies.

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