• The Rise and Fall of Steel Prices

    June 1, 2009
    Once a month, a group of HARDI members meet via telephone conference, not for the proverbial coffee klatch or personal gossip but to draw upon each others'

    Once a month, a group of HARDI members meet via telephone conference, not for the proverbial coffee klatch or personal gossip but to draw upon each others' contacts, skills and business acumen — contacts that help them face the ever-changing question of steel pricing and related issues. And the group, while changing names occasionally, has finally settled on a formal name within the HARDI framework: The Sheet Metal/Air Handling Products Committee.

    The notes from this past March meeting (see sidebar) reflect the finger-on-the-pulse beat that is the tenor of the Committee.

    Arthur Franklin, president of Fairfield, N.J.-based S. Franklin & Son Inc. and the long-time moderator of the HARDI-sponsored steel conference calls, provides a brief overview of how distributors actually purchase steel-related products.

    First, larger distributors generally purchase directly from steel mills and, in “normal” times, obtain the best price, buying, for example, a single-lot truckload which equates to about 45,000 pounds, says Franklin. The lead time generally ranges in “normal” times from three to eight weeks, according to Franklin.

    A second channel is master steel service centers. As Franklin explains, pricing here is more expensive than mill pricing, but these centers maintain large inventories and can ship immediately. Here, too, a typical truckload is 45,000 pounds, according to Franklin. While the pricing is generally more expensive than mill pricing, their value is extensive inventories and immediate shipment. They will also sell mixed truckloads consisting of multiple steel items (but again typically in 45,000- pound truckloads).

    In addition to holding large inventory, service centers often offer processing services, which reduce or eliminate the time the customer needs to further shape or prepare the steel. This can include basic cutting, shaping or burning the steel. (Service centers go back to colonial days when they were called ironmongers and provided blacksmiths with product from British and Swedish mills.)

    The third channel is foreign imports. Distributors turn to this channel for the largest purchases, which require the longest lead time because they're shipped by boat across the ocean.

    Franklin points out that under usual conditions, the discussions center on staying current regarding pricing and availability of steel in the marketplace.

    But in these “atypical” times, the conference calls have become even more valuable.

    “We have wholesalers on each call who utilize one, two or all channels,” Franklin says. “Steel is a commodity whose price and availability are driven by supply and demand. Our group last year was discussing the mill consolidation (lowering supply), which contributed to the run-up of prices during the first half of last year.”

    “Later last year, when demand for product throttled down, we all watched and discussed the downward trend in pricing. We have also been discussing the availability and pricing of foreign steel, which is further complicated by many geopolitical considerations (and its long lead time in a currently rapidly changing market).”

    “We collaborate freely with each other on the conference calls so that we can try to anticipate what the price, lead times and general availability WILL BE so that we can be great HARDI wholesalers.”

    Franklin, who has served as moderator since 2005, encourages anyone who buys steel to “attend” the meetings which usually result in 15 to 20 attendees.

    If your business deals with steel, the telephone conferences work well for the “exchange of ideas and an understanding of the marketplace,” Franklin says. “There's no better way than hearing others' views and suggestions so that you can adapt the information to your business.”

    He notes that the group also talks about other related products in addition to steel. “We also discuss products such as fiberglass, registers and grilles,” Franklin says.

    For more information about future calls, contact Chair David Boggs, 410/540-2800 or Vice Chair Arthur Franklin, [email protected] or 973/227-2500.

    Tom Peric' is the editor of HVACR Distribution Business magazine. Contact him at 856/874-0049 or [email protected].

    Notes from the March Steel Committee Conference Call

    When the turnaround begins, will steel be ready? When steel wholesalers get unsolicited price cuts, you know business is flat. Participants in the Sheet Metal/Air Handling Products Committee March conference call reported, in some instances, weekly declines in prices. As scrap metal prices continue to fall, members suggest that steel prices will not rebound anytime soon. With mills operating at 50 percent capacity or less, concern about lead time enters the ordering equation. Any rebound would quickly challenge production capacity, prices would shoot up and product shortages likely. However, some feel foreign steel may be able to take up some of the slack. Tight credit is also responsible for some delays in commercial projects.