Olympic CEO Bullish on Metals Market

High steel prices are a risk to service centers, which bear the cost of carrying inventory and face the potential for its devaluation if prices reverse course. Inventory at service centers is held, on average, over a 100-day cash cycle from purchase to sale to collection of receivables. During an environment of escalating prices, service centers must sell on replacement cost in order to have cash to buy the next cycle of inventory, he said.

Managing assets well is crucial today given the record-high steel prices. Many companies are bumping up against their credit limits as they seek cash to finance their inventories. “The good news is that if you are a good performer, banks right now may be amenable to increasing your credit limit,” he said.

When asked if it’s advisable to build up inventories right now, Marabito said it’s impossible, even if a company wants to, because the steel is not available. The market is incredibly tight now with the spot market essentially gone. Olympic is at all-time lows in total steel on hand measured in tons, he said. 

Steel prices are at record highs, with flat rolled over $1,370 per ton. How high steel prices will go is impossible to predict, said Marabito, but there is plenty of good news on the horizon for demand. China led the economic recovery in 2020 and the U.S. is leading it in 2021 with the EU still lagging behind. “The market will have legs” as global economies recover, he said. The current downturn is “man made” due to governments shutting economies down, and governments will be the ones to decide when they reopen. “I see the glass as half full,” said Marabito.

Olympic Steel is a strong advocate for the infrastructure bill proposed by President Biden, which Marabito expects to pass. “I think we’ve crossed the bridge. It’s not a question of will we have it, but what to spend the funding on and how to pay for it.” Government stimulus has worked very well and kept the economy from collapsing, he added. An infrastructure bill will have long-term benefits including dialing down societal tensions by putting people back to work.

Along with supply chain issues and high steel prices, companies are competing for labor. Shortages of workers in the steel, trucking and construction industries are issues that the country will be dealing with for the next few years, said Marabito. There have been some problems with workers waiting until stimulus funding runs out before re-engaging with the labor force. Labor costs have increased and will contribute to inflation, he added.

Asked if the steel shortage will worsen with the passage of infrastructure spending, Marabito noted the time gap between passage and actual usage of steel over the next decade. “There is time between now and then. The supply chain disruptions will have settled…and we will see more appetite to import and some new capacity coming online.” He called it a “great problem to have,” and said it will also incentivize steel manufacturers to make new investments.

Regarding Section 232 tariffs, Marabito expects the administration to maintain them for another year or two with possible adjustments.

He concluded the webinar on a confident note. “Price aside, I think the next three or four years will be a really good cycle for metals, and if the price is $800, $900 or $1,000, okay. A good demand cycle cures a lot of problems for everybody.”

By Sandy Williams, Sand@SteelMarketUpdate.com