- Today on the Metal Roofing Channel, we're back with another
metal market update. We're gonna talk about steel, aluminum, where the construction market is headed in quarter one of 2022. (upbeat music) What's up, guys, welcome to
the Metal Roofing Channel. I'm Thad Barnette, make sure
you subscribe if you're new. We release metal roofing and
metal construction content every Monday and Wednesday. Today we've got another update for you for quarter one of 2022. So today I've got Adam
Mazzella from Sheffield Metals, a metal roof manufacturer
in the United States. And tell us a little bit Adam about where the market is right now and what we've kind of seen. - Yeah, so we're coming out of
just this extraordinary time because of the pandemic and
all this pent-up demand, and everybody's spending time
at home to just this thing, when things opened up
and really let loose, the market exploded. And this is already a market that was challenged with labor. It's a market that most
people in our position, or I'd say the entire
market was challenged because of supply chain issues. So, most people were on allocation, a lot of people couldn't get things as much as they'd like to get to be able to service all
of this pent-up demand. So, I think what we're seeing
from per really August of 2020 to where we're at today, January, 2022 is I think a lot of that stuff is starting to soften a little bit. I would say the market is
still relatively strong, the architectural billings are still up, but we are seeing some softening. A lot of the indexes that we're
seeing in the steel world, the aluminum world, they're
starting to creep back, I'd say, to more reasonable levels. It's not dropping like a
rock, which is encouraging, but things are starting to,
we'll call it stabilize. Now, what does stabilize look like? What does that mean? The pricing and the market is going, I think is to be determined, but the extraordinary event
of the market opening up and really the significant
amount of construction, particularly metal construction that's occurred in the last 18 months has been extraordinary. It's been extraordinary for the industry, it's been extraordinary for
homeowners, home builders, as you've seen your
investment in your house or your investment in your building has done nothing but appreciate. And then you're adding
value on top of that, modernizing your project on top of that. So I think we're seeing a lot of things starting to peak out. So the market could still stay strong, but there's a number of factors that really go into, where
things are gonna go from here. And then I'll be honest with you, a lot of it is speculation,
but just kind of looking at where we've come from
really the last 24 months give or take, to where we feel things are
gonna be going into 2022. - And we get into some
more product specific stuff here in a second, but I wanna get back to what
you said about the design side and the architectural indexes. Can you talk to us a
little bit about that? Explain why that's important
and where they are right now. - Yeah, so the architectural index is, again, we're in the first week of 2022, so we don't have any data for December, but things are still
trending in a positive light. They're trending down a little bit, as far as the architectural billings. However, they are still
viewed as a positive light, above 50 is positive, November. And then all the prior
months say all of 2021 were positive from the
architectural billing standpoint. They are softening, part of
that could be the seasonality. We are in the winter, certainly not as much construction happens or construction doesn't
happen as fast in the winter. So, I think people could also be saying, hey, these products are
extremely expensive. I'm gonna be paying a premium, what if I wait three months, six months? But as far as the billings go,
we're still building stuff. Things are still being "Commissioned" to be built in the future. So, from that perspective, they're saying and projecting that the market is going to stay strong. Now, there's a number of things that could continue to
drive that number down, but we don't have the December numbers. Certainly, we don't know what
the market is going to do, but we feel it's going
to at least stay strong in the first quarter to
the first half of 2022. - Now, we've seen steel, does the price of steel
come down recently? Is that something that
we can expect to see going into the future and going into 2022? - Surely, I think a lot of the
steel prices is really tied to a lot of the supply chain challenges, man, you see the things in the news about the chip shortages. A lot of the automotive
manufacturers didn't even come close to what their targets for 2021 were. And a lot of it was, hey, we can build as many cars as we want, but we can't complete them,
we can't put chips on them. So we're only gonna build so
many that we can complete. As companies recover
from the chip shortage and have a high demand for
more automotive products I'll say say, that is a huge consumer of
flat rolled steel products, which is the world that we plan. If the automotive world
bounces back dramatically, there might not be this continued landing, it could actually drive the price back up into new higher levels. So, we don't really roll
the dice with the market, we buy what we need as we needed. It's kind of, we follow the market up, we follow the market down, and everywhere in between,
the anticipation is, is that, we think the market's going
to soften a little bit. You're looking at December,
January, February, the traditional slowest
construction months of the year. And it really depends on
where the supply chains go that will drive other
complimentary metal products from there. - So we've talked about
steel, what about aluminum? Are we seeing the same thing? Is it acting a little differently? - Yeah, I think the aluminum
world's a little bit different. The domestic steel world for instance, has a lot of mills across the country. Really the domestic
aluminum market is dominated by two primary mills. So, I think aluminum
has inherently behaved a little bit differently. There's not as many products that are dependent on the
chips like the steel world is. So, the aluminum world, I think is a little bit different because the demand for aluminum
is still extremely high and that market, it peaked, it came down, and then it seems to
be going back up again. So I think aluminum prices
will continue to stay on the higher end. We're not anticipating
aluminum prices dropping. We've seen increases in fab charges. The domestic mills are
pretty much maxed out at what they're willing to
provide in our product mix. And we're actually starting
to see more and more import come into the United States. So, we think that, that is gonna keep that
price relatively high, part of it is how much
of the import comes in that's gonna drive pricing
pressure back down. - So you mentioned earlier that we've seen that
construction demand overall really explore in the
last couple of years. Is that something that you see continuing? - I think it's gonna depend by market. So, if you look at a lot of the things that were hit hard by the pandemic, you didn't see as many people at malls, movie, theaters, retail, things like that. I don't think retail is gonna
have just this major boom, I think when people start
to feel real comfortable, again, coming out of the pandemic, then we'll see a big retail
boom, kind of looking at it, we're seeing where are
people spending their time and that's where the money is being spent. So a lot of residential construction, residential construction
has been enormous. I think we're still gonna see
strong construction demand on the residential side. I think that'll certainly
soften if the prices continue to just go, go, go. The other big challenge that we're seeing that could keep prices high, that could keep demand relatively high is the limited skilled labor that we see in really all construction. So, we talked to our
customers, roll formers, contractors, wholesalers,
the number one thing we hear, and we've been hearing this for years, regardless of the pandemic, well, before the pandemic,
is access to skilled labor people that can do the work,
do a good job with the work. I think the biggest opportunity
moving forward really is people that are willing
to get into contracting, willing to learn the
trade, become good at it, and then be able to successfully manage a really strong metal
fabrication business. I think there's tons of money in there, and you don't need to go
to school to learn that, you're really learning, making money, learning on the fly. - What other types of factors do we see that's causing prices
to increase, decrease, have volatility? - Sure, so, one of the big
things that we're seeing is a lot of pricing pressure
on the paint side in our world. So, our world is really PVDF paint. There's a couple of
different levels of paint. PVDF being the highest
and architectural coating that we work with on a daily basis. So, that coating is used
heavily in other areas, and there is a lot of strain on the market as far as being able to get
the PVDF or kind of coating. Paint prices are going
to continue to rise, and we're not sure how much more, but we have a feeling that
they're gonna be significant going into 2022. So, even if we are starting
to see the price of steel drop or aluminum, whatever it might be, some of the softening that could be, that you may inherently
think is in the market may be gobbled back up by the cost of paint going up. That's something that we're
actively keeping an eye on. First and foremost, we wanna make sure that we can
take care of our customers. Some of the alternatives that may start to creep into the high-end architectural world is using a lesser of a paint system. Certainly, we can't really
speak definitively that, hey, here's gonna be a
big market shift that, but that's one of the things
that we're keeping an eye on and trying to make sure that
we can provide our customers, the highest and top-end quality things and be able to make it
at a reasonable price or not too big of a spread between that and the substitute type of product. - And because we can't
really say definitively what the market's gonna do. There's a lot of questions out there, and nobody's really sure, as a business owner, what are you supposed to
do with that information? How can you prepare yourself
and protect yourself in the best way possible? - Yeah, it's the same thing
as your home finances. So whether you're a business
person, a homeowner, what value does this spend have? Can I finance this? If I do finance this, how much is the financing
going to cost me? You don't ever wanna put
yourself in a position where you're gambling and saying, "Hey, it's all or nothing." You certainly wanna avoid that, whether you're a business
person or a homeowner. So, if you're saying, "Hey, I need a roof. I can spend $15,000 for a
Comp Shingle Asphalt Roof, or I can spend $35,000,
but I don't have $35,000. I can't finance it," then go spend 15K that
you hopefully can afford that isn't going to put you in trouble. And the same goes for really
any valid business decision. I think we're coming out
of a very, very prosperous, portion of time. I would say from a speculation standpoint, don't overextend yourself, treat it like, if you're gonna spend it, you've got the money to
spend, if you're saying, "Oh yeah, well, home prices
that are at an all time high, I can spend this 20K and it's gonna turn into 40K of value." I don't know that anybody knows that, inflation could stay high,
but home values could drop. There's no definitive answer,
other than I would say, I think things are starting to soften in the whole of the economy. So it may not be the best
time to just go bananas, particularly if you don't
have the money to do so. - Again, for business owners, we've seen CapEx equipment prices go up, whether that's a roll
form or a break shear, a forklift, lead times have
increased, prices have gone up. What's your advice for a business owner looking into something
like that right now. - So if you think there's
demand in your business to go and invest in your business so you could grow your
business, I'd say, go for it. There are viable alternatives to going and spending a $100,000,
$200,000 machinery or equipment. But if it comes into,
hey, I gain 15%, 20%, 30% on my products by taking
control of manufacturing and I still have the demand for it, and I know what I'm
doing with this machinery and this equipment. If you know that you can make money on it, that's a good bet on yourself, good bet on your business to
be able to go and do that, take control of your manufacturing. You may wanna look at it and say, hey, I just don't have
the demand right now. I've had two years of phenomenal demand and a great pace to my business, and I have a pile of money
I would love to spend. But, if you don't have enough to spend to carry you through a potential wall, maybe you should sit back, and nobody wants to sit on money, particularly with what
inflation is doing right now, but by truck, by a roll former, but don't overextend yourself. I think that's the last
thing you wanna do. In addition, if you are
looking to spend money, there still are a lot of
federal programs out there, section 179, things like that, that will allow you to
have bonus depreciation. It's always good to look ahead and say, hey, I'm anticipating, I've got a backlog for
six months for 2022. I know I'm going to do well this year, particularly for two-thirds of the year, it's probably a good opportunity to say, hey, I'm gonna invest
in this equipment now, I'll probably get it in
three to four to five months. And that way you can have
that bonus depreciation waiting for you for calendar year 2022. A lot of times we see people
calling us in November and December saying, "Hey, how quick can I get a roll former? My accountant said I need
to go and spend money," particularly, what's gonna
add value to your business, that you can take a big
chunk of depreciation out of your earnings the year that you bought them equipment. - Thanks, Adam, really appreciate it. Make sure you subscribe here
to the Metal Roofing Channel to be kept up to date on
all the industry news, comment down below with questions, and as always, I'm Thad Barnette, we'll catch you next time. (upbeat music)
