Steel Mills

HARDI: “Cautiously Optimistic” About Construction, Galvanized Prices

Written by Tim Triplett

Wholesalers of HVAC products for the construction market report surprisingly strong sales given the coronavirus situation, but also concerns about construction demand in the second half when current work is completed and there are fewer new projects in the pipeline.

In a conference call this morning, members of the Heating, Air Conditioning & Refrigeration Distributors International expressed “cautious optimism” about their prospects as businesses reopen and the economy gradually recovers from the government-ordered shutdowns to stem the spread of COVID-19. The HARDI members, who sell galvanized steel products to contractors and other customers, are particularly vulnerable to recent swings in the price of coated steel.

The base price of galvanized steel has been erratic since the start of the year, beginning 2020 at a healthy $800 per ton, but sliding to around $770 by mid-March just prior to the coronavirus shutdowns. By late-April, as the virus crisis worsened, the galvanized price had dropped to $650 per ton, a plunge of $7.50/cwt for the year. Since then, boosted by a mill price increase, the galv price has recovered slightly to the current $670, according to Steel Market Update data (now $660 as of this evening).

John Packard, president and publisher of Steel Market Update, said lead times for spot orders of galvanized steel from the mills now average around 5.80 weeks, up a bit but still well below prior levels. Scrap prices increased in May on tight supplies and are expected to move up again in June, which may help firm up the price of galvanized and other steel products. Conditions vary widely by product, by region and by mill, making it particularly difficult to predict price trends. Steel Market Update’s Price Momentum Indicator remains at Neutral until the market establishes a clear direction.

“The galv market is definitely bouncing around at this point. Some mills are in the $34-35/cwt range and others are still in the low $30s. This is definitely a market where everything is negotiable—coating extras, freight, etc.,” Packard told the HARDI members.

About half the manufacturing and service center executives polled by SMU last week said they expect their business to return to pre-virus levels over the next few months, while the other half do not expect recovery until the fourth quarter or into next year.

SMU’s Steel Buyers Sentiment Index offers a sliver of good news, however, as both Current and Future Sentiment readings have risen by 20 points or more since the beginning of April. Current Sentiment is now at +15 and Future Sentiment at +30, both in positive territory. “Optimism continues to grow as more businesses open back up,” Packard added.

Demand remains fairly good for some HARDI members, depending on their location and the focus of their business. “We saw our sales per day decline in March and April, but not extreme. The half month of May is starting to trend back toward the first two months of the year,” said one executive on the call. “Our pounds sold month to month has been very consistent. The margin dollars are down considerably, however, which is having a dramatic effect on our overall business.”

He anticipates a slower U-shaped recovery for the economy. “In construction, we are not feeling the pain now, but I think we will start to feel it 6-9 months down the road as those dollars taken out of the economy are not invested in new offices, restaurants and schools.”

Another wholesaler reported a 20 percent downturn in business in April, which was better than expected, but the recovery so far in May has disappointed. “We would like to see steel pricing settle down a bit. Some mills have pegged a number you can’t go below.”

Another HARDI member said he is starting to see some improvement in volumes, though they remain far below this time last year. “Cautiously optimistic is how we view things. We’re waiting to see what the mills do this week.”

Mills have remained flexible in negotiations, but prices have not gotten low enough to attract imports, said another exec on the call. “Most of the foreign, primarily out of Mexico, has been knocking on the door, but nothing near the domestic number.”

Activity for another wholesaler has held up better than anticipated. “It will take more reopenings to build that confidence in all businesses. But with the number of mill furnaces out of commission, coupled with the rising price of scrap, I think there is a potential upside for steel,” he said.

With scrap prices on the increase and demand to get a boost from auto plant restarts in May and June, Steel Market Update expects another price increase announcement from the mills soon, most likely another $40 per ton, Packard said. “The integrated mills have shut down a large portion of their capacity. They will have to restart some furnaces soon. It will be a big balancing act as they bring capacity back online. How much is enough? How much is too much?”

The majority of HARDI members see steel prices on an upward track, as more than 60 percent predict galvanized prices will increase by at least $20-40 per ton ($1-2/cwt) over the next 30 days, based on a real-time poll of executives on the call.

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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