HARDI Members Surprised by Declining Galvanized Steel Prices

Demand for HVAC products remains relatively strong in an otherwise lukewarm steel market, but members of the Heating, Air Conditioning & Refrigeration Distributors International (HARDI) say they are challenged by declining galvanized steel prices and rising intensity from the competition.

Polled six weeks ago, nearly all the HARDI members expected galvanized steel prices to stay level or increase by $1-2/cwt. Instead, galvanized base prices have dropped to under $37.00/cwt, from around $38.75 in mid-August.

According to the wholesalers on the monthly conference call earlier today, several factors are adding to the downward pressure on steel prices. The price of ferrous scrap declined by $40 per ton in September to its lowest level of the year, down $115 per ton since the beginning of 2019. Steel imports, still restricted by the Section 232 tariffs, are down 13 percent in the last three months, compared with the same period last year. Imports of galvanized steel totaled only 199,000 tons in August, well below the 12-month average of 223,000 tons. Reflecting the questionable demand in the marketplace, the steel mill utilization rate has declined to 77.7 percent, off the year-to-date average of 80.7 percent.

“There’s not a whole lot of great news for the mills. Scrap is low, demand is lukewarm and most people are in a pretty good inventory position,” said one executive. “Therefore, I think you will see prices continue to fall despite the fact imports are down.”

Pointing to two “dead cat bounces” or brief and lifeless upticks in prices earlier this year, John Packard, president and publisher of Steel Market Update, told the HARDI members, “We are in the process of what looks right now like another downstroke in the marketplace. The expectation is we will breach the lows we saw earlier this year in June. You folks need to be careful with your purchasing.”

Steel Market Update’s Price Momentum Indicator is pointing Lower over the next 30 days for all steel products, including galvanized. “I see nothing that will push prices higher, and the GM strike will certainly not help,” Packard added. “You may see the integrated mills come into the spot market with some extra tons if the strike lasts much longer.”

Most of the HARDI members reported generally positive order activity from their customers in the construction sector, but said they are being cautious and keeping their inventories tight in the declining price environment. Following are some of their more insightful observations:

“It’s not a great time to have a bunch of steel on the floor with prices we haven’t seen since 2017.”

“We have leaned out our inventory somewhat expecting prices to continue to go downward. The problem with good demand is you sometimes have to buy steel even when you don’t want to. That will have a drag on margins.”

“Demand remains solid. We’re tracking at the same rate as earlier this year in sales per day. Contractors are telling us they remain busy. Demand overall may be lukewarm, but in our construction sector it’s fairly solid.”

“We see demand fairly stable, but we’ve seen cracks in the armor with some customers saying they are slow right now. Most expect work to improve in the fourth quarter. People don’t want to be caught with inventory that will be cheaper the next day.”

“Our market remains steady—not great but no gloom and doom. We’re on pace to hit our yearly goal. When people have leaner inventories, we get busier on the fill-ins.”

“Our demand is very strong right now and we expect it to continue through 2019, though multi-family construction is slowing down. There is money to be made. But there seem to be a lot of players selling steel who are willing to do it at really low margins.”

“Some [competitors’ prices] look ridiculously stupid. We are fighting for every order, just to make sure we are there when the market goes back up.”

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.