- And we're back with
another market update here in Q2 of 2022. We're talking steel, raw
materials, global implications. We've got special guest, Chris Billman, from Majestic Steel to talk with us today. (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. And we're back with Q&A Mondays here. We've got a metal market update as we enter quarter two of 2022. I've got Adam Mazzella,
back with me today. Thanks Adam for being here. - Thanks. - And we have Chris Billman,
from Majestic Steel, and he is a market research manager there. Chris, thanks for being here today. - Absolutely, glad to be here. - For sure, so we're talking a little bit about the metal market steel, aluminum, raw materials, whole gamut. And we're gonna start with Q1 and kinda give a recap of
what that has looked like. So, Chris, can you give us a recap of what Q1 looked like for
steel and some raw materials? - Yeah, absolutely. I mean, after the previous
18 months starting mid 2020 through late 2021, where
steel pricing was skyrocketing hitting record highs
almost on a weekly basis, we saw the market turn
and a slowdown in pricing where through November,
December, and into Q1 we saw pricing come back
almost half of the gains that it saw the first
18 months of the cycle. It was combination of
people buying offshore, the domestic market getting too high, and then just no buying at all. Kind of a buyer strike
that we saw in the market that led to the downturn in pricing. - Yeah, definitely. And Adam, can you talk too a little bit about what we told our customers at that time as Q1 finished up? - Yeah, and I think we were really talking about things being at a peak and we felt that they
would start to soften. We always talk about, "Hey, we
hope it comes down gradually. We hope it doesn't jolt down." It came down fast, but at the same token I think everybody had
finally received a lot of late inventory, a lot
of offshore material, which kept inventory price
prices high, cost high, which really in exchange didn't translate into a real big benefit
for buyers downstream. You had high price inventories,
as Chris mentioned, and then you had kind of this buyer strike but there really wasn't a big window for this quote unquote, buyer strike where there was a lot of
people capitalizing on that. - Yeah, absolutely. I mean, you talked about the buyer strike and the delays in
offshore material as well. A lot of that stuff was bad
in September, August of 2020, when the domestic market was peaking. But combination of the
long extended lead times, the port congestion, it
just extended the timeframe of when that material
was hitting the market. We're still kinda seeing it
in the import numbers today. And that stuff as you can remember it bought five, six months ago. - So now we are at the end of
March, early April of 2022. And we're seeing increases in the price of raw materials and some other things. So tell us where we are now. What has this led to? - Yeah, we are seeing a sharp turnaround in pricing going back to the
middle of February kind of, right when the Russian
invasion started over Ukraine. Pricing around the globe shot
up almost instantaneously. A lot of that was driven by raw materials, particularly scrap, pig iron, and down into coke and
coal and iron as well. So both blast furnace and
electric arch furnace production was getting hit hard. There's just not enough
supply around the world to make up for that raw material
production in that region. You add that to Russian sanctions, and then there are just
fears of supply shortages and rising raw materials. And the domestic mills
and the global mills kinda took advantage and pushed pricing up and it's skyrocketed from there. - Alright, how can the
market get more volatile? That's kind of what we've seen as we've entered into
this Q2 of 2022 here. Talk to me about scrap and pig iron and and other raw materials. Explain to our viewers
why that's so important when it comes to driving price and cost of these other materials. - Yeah, essentially scrap
is kinda double edged sword to what happened to that market. Pig iron is kind of a scrap alternative. The United States imports about 60% of their imported pig iron
about 4 million tons a year from the Ukraine and Russia region. The balance of that usually
comes from Brazil and Canada. And here's just not enough
production in those regions to make up for the
demand domestically here in the United States, but also
if you think about Europe, they're getting hit just as hard as supply shortages for everything. So that skyrocketed pig iron pricing from around $600 a metric ton to now, well, over a thousand
dollars a measure of ton. And comparatively to scrap, there's usually historically
a 15 to $25 premium of pig iron and over scrap. And if you think about that, that would push scrap pricing
up to almost $1,000 a ton. We're currently just under $700 a ton for prime scrap as we sit today. But where you think about
where prime scrap is generated, it's the manufacturing sector
particularly automotive and that continues to be hampered by the chip shortage and other issues. So the generation of prime
scrap continues as a lag. The demand is there 'cause
the mills wanna push out as much material as they can whereas scrap alternative
pricing are skyrocketing. It's kind of all came together to push scrap pricing up significantly. In March we saw the largest
month over month increase for scrap pricing on a dollar basis ever. And that even goes back to 2008. That's a key raw material for steel making and ultimately what set the
floor for finished steel prices. So the sharp increases we saw there is only pushing finished
steel pricing higher as well. - What does that mean for steel? We see those raw materials,
we see those prices. What does that mean
for steel when it comes to Sheffield Metals customers,
really any steel consumer? - Kind of making a differentiation between some of the
things Chris is saying. So when you're talking about pig iron and creating a higher quality product, pig iron is gonna give
you a better product out of an EAF furnace
than a lot of the scrap. - Electric arc furnace, right? - Yes, electric arch furnace. Then you would out of other things. So that's one thing that we're
keeping an eye on as well. Typically, we can get a good
coated Galvalume® product. And it doesn't impact shape too much. You put paint on it, so
it's really not going to impact the integrity there. But when you look at automotive
and the longevity of that that's one thing that could
drive it up even further is the demand for that prime scrap that Chris is talking about. So what we typically tell our customers is we're still kind of at
the peak with our pricing. A lot of our inventory is that quote unqoute, peak inventory. We don't know how high the market is gonna go in Q2 and beyond. There's a lot of things happening
in the market right now. Whether it's geopolitical, whether it's geographical,
whether it's supply chain issues. All of these things continue to happen. If the chip shortage
resolved itself tomorrow that would put additional
pressure on steel mills and cause additional inflated
prices, additional demand. So until some of these things in the supply chain
fully correct themselves or quote unquote, stabilize,
it's really difficult to say, "Hey, this is
what's going to happen." I think as far as Sheffield customers go, you can try to beat increases but there's no saying that
you'll actually beat it. If you're planning on speculating for three months out or six
months out, things like that, you may be able to beat it
but it might be a bad bet. So typically we tell people, particularly with the
allocations that are in place with a lot of our products,
buy what you need. Don't go overboard beating it. It could extend your cash. It could cause additional
issues down the line. - So we've talked about supply issues. What about demand? Are we still seeing
increased demand for steel both in architectural and other markets? - Yeah, I would say it's pretty steady. We saw, going back to COVID, right after COVID the
demand never really fell off as much as as people were expecting. It remained relatively strong especially on the construction side. Particularly whether it be
home projects, new builds. We saw a decent drop on non-residential but that has come back now. Just the most recent
architectural buildings index came out yesterday. It's still over 50, which signals
expansion for that market. It's been over a half year now of continued months in expansion. So that usually pulls
appliance along with it. Agriculture is pretty strong. The two sectors that seem
to be lagging behind, auto, for reasons we talked about, and the energy market
for different reasons, geopolitical reasons and whatnot. So, but overall steel consumption as particularly on the
flat rolled side domestically is strong and I think
has potential to grow whether back half of 2022
and into 2023 for sure. - So we touched on it before, but what does the Russia-Ukraine
conflict look like for us in the steel market
and in that steel world, what is it doing right now? - It's kind of a change in
shift in the supply chain. We saw a major change where
raw materials are coming from as the United States is probably one of the most self-sufficient
countries in the world when it comes to raw materials but even were not isolated
from global incidences. I mean, if you think
about the European market they rely heavily on
Russia, Ukraine for oil, for other key raw materials,
steel in general, slabs. Russia is one of the major slabs semi-finished steel
exporters in the world. So it's kinda just shifting
where that consumption is coming from, where that
demand is coming from, where the supply is coming from, and it's just kinda through a shock to the system of the global market. - So is it possible for
some of that production to come back online? If this ends soon, what
does that look like? - Yeah, if you were to wave a magic wand and end the war today, the damage is done. I mean, the infrastructure is ruined. There are cities that are just leveled. There are reports of multiple steel mills just getting shelled,
completely destroyed. Other pig iron facilities
getting destroyed. That's stuff that can't come back. If you're a mill and you can
produce 100,000 tons a year, you can't just automatically just start producing 200,000 tons a year. The scope of a project to build a mill, a new furnace, is extremely extensive and extremely expensive. So that's just not something
that can come back to tomorrow. And then when it comes from the sanction side
on the Russian side, would there eventually
be some easing? Probably, but I don't think they
would just turn around and lift those immediately as well. - So we've talked in some
previous industry market updates about some domestic mills coming online, maybe increasing capacity
here in the United States. Is that something that we're
seeing or going to be seeing? - Yeah, we've definitely
seen a new flat-rolled mill in Sinton, Texas, by SDI,
some new investments. U.S. announced a new flat-rolled mill in the Arkansas region. Nucor announced one in West Virginia. It seems to be a lot of the talk of new capacity, added
capacity domestically was always seen as kind of a negative, but I think this market that we've seen in the last two years
it's almost a positive. We should be able to rely
on our domestic industry. If you have to rely on
foreign governments, whether that's China, Russia,
other unsavory players, that you really don't have control over it really could put a wrench
in the system very quickly. - So how does that tie in with 232 and import tariffs on materials like that? - Oh, yeah, we've seen
it have a major impact when it was first put into place. The 10% tariff aluminum, 25% steel, we've seen kind of it was
never meant to stay forever. It was kind of just a blanket tariff to kind of ease, put stop to everything and then kind of figure it out from there. We've seen off agreements. We saw an agreement
with the European Union, where it changed to a tariff free quota, meaning you can bring in so
all much material after that then you get hit with the tariff. Just this week, there was
a agreement with the U.K., but like I said earlier, that those global markets
are so shook up already, that pricing, I mean,
we've even seen instances where the European market
has come to the U.S. looking for the U.S. to
export material to them. Something that we would
never would've forecasted in any scenario. So it's kind of just shaking up the whole. Global supply chain has been shifted. - And in our last video, the future outlook looks very different than what it actually has come to pass. So what are we looking at now and what can we come out
of potentially expect going into Q2 and some things to think about? - For steel pricing we're
definitely seeing on the rise. I mean, we hear the word
inflation pretty much every day and almost every conversation now and that the steel market
is no different from that. From the raw material side
through finished products. We're seeing price escalation,
but as we move forward, like you talked about the auto market. If we see a relief in the chip shortage that would be a big pull for demand there. We're also watching what the Fed does with the interest rates. We've already seen them raise them once. They've talked about minimum seven or eight times, they're gonna do it. If interest rates get back up
to three and a half percent, what's that due to consumption. I was looking at a trend the other day and for every time the Fed raised rates, stock market almost inversely
came down a little bit. And I was reading to every $100 stock market came down, or 100 points. That's $3 less consumer spending. So does that have an impact? Eventually, probably if you're
spending $100 at the pump, you may not be saving
for a new refrigerator. So that's definitely ahead of when we're watching
inflation interest rates but I think fundamental demand is there. And like I talked about earlier, potential for increased consumption is definitely in the market. - Yeah, that's a good point about demand. And Adam, can you talk to that as well about maybe Sheffield Metals customers, builders, designers, people like that that are looking at commercial buildings, residential buildings, what
do we see going into Q2? - So we're coming out of the winter. So the building season really
is kinda kicking off already. We are seeing demand on par with what we'd expect
for this time of year. What I would say is coming and going into the winter and now
coming out of the winter, we kinda have of new things at play. And what I mean by that is we're
out of allocation on steel. I am envisioning steel
allocations coming back though. We are in aluminum allocations. We didn't have those previously. And then the whole
market is really in PVDF or paint allocation modes. So we're trying to get new creative ways to get the same job done and
and be effective with it. We think demand is gonna be there. We think that the 2022 year is gonna be a strong construction year. Chris hit on the architectural index. We keep an eye on that as well and we feel really good going into 2022 in the construction season. I think the drawback is at what point will
the market cry uncle. We talked about kind of that steel strike that started to kinda
have some creep in there, I'd say in late Q4 '21, early Q1 '22. I think we're anticipating prices either getting back to where were or even above and beyond that for 2022 from a Sheffield customer perspective. - And I would say more than ever now is the labor markets
having a major impact. So the other day there's
like 11 million open jobs. There's only 6 million unemployed people. It's almost a two to one
ratio of open jobs to people. So not only finding labor,
but finding good labor and the cost of that labor
is gonna have a major impact throughout the market as well. - Adam, can you expand on
aluminum a little bit more? - Sure, so the aluminum squeeze kinda is following really every other
commodity that we've seen. There's been a lag with the aluminum. Demand from steel, but really what's happened with aluminum is steel mills, not just domestically but internationally, are kinda saying, "Hey, there's a finite amount
of product that we can make." So that's gonna create additional demand, additional price on that. So what we're seeing
is it's more difficult to get more narrow. So where we were previously able to get all of, really
whatever weights we needed, we're having to get creative with it. So 40 inch wide, a lot of
aluminum mills are saying, "Hey, we just don't wanna
support 40 inch wide. Unless we jack it up to a number that exceeds the 48 inch price." Then we look at it and say, well, can we get creative with it? What do we need to do? So we're trying to navigate
a lot of challenges with respect to the
supply chain and aluminum. I don't think we're unique in that matter. I think whether you're
creating consumer product or an architectural product, aluminum is gonna be a challenge. What 232 did with aluminum
was to make it harder to get certain types of aluminum. We responded, we reacted
we've provided as good or better of a product since then. I think it's just gonna be something that you gotta get creative
with, taking stride and figure out a way to navigate it. - So Chris, Majestic Steel
sells to a wide range of people. And can you kind of explain
what you tell them to do with this type of information? - Yeah, we like to use a football analogy. We kinda sit at the 50 yard line where upstream we pretty much buy from every domestic supply,
North American supplier, some foreign where it makes sense. And then sell to every end use. We always tell, going
back to what you said, tell our customers, buy what you need. Don't overextend yourself. Let us manage your inventory for you. I mean, that's kinda what we're here for as a service center. Let us hold the inventory,
let us take the risk in managing the market for you. That's what our number
one value proposition is, is having the inventory when
you need it at the right time. - And similarly, Adam, what do you tell Sheffield
Metals customers going forward with this information? - Be smart with your bids. Be cognizant of escalation clauses that you want to include in your bid. The more you communicate, the more you educate a building
owner, homeowner architect, general contractor, the
better you're gonna be. If anything the last two to
four years have really taught us is that there is extreme
volatility out there. There is a place where everyone
can be not just break even, but be prosperous and be productive. I think you wanna try to find a win-win solution for everyone. So let's say you put a bid in today, price of steel goes up 20, 30%, you wanna make sure you protect yourself. You wanna be open with this information to a general contractor, to an architect, that what is going on in the market today. And at Sheffield Metals
we're more than happy to provide documentation, "Hey, this is what's
going on with the price." Then it's really about supporting
our customers' businesses as they navigate these difficult times as the world keeps moving forward. - And in such a volatile
market it's so important to have accurate information
and up-to-date information. And Majestic Steel, Chris
does a great job over there with providing tons
and tons of information on a very timely basis. Chris, can you tell us
a little bit about that? - Yeah, absolutely. We produce a weekly market report. It's called the CORE Report. You can go on majesticsteel.com. It's free to sign up for. It comes out every Monday
morning, right into your inbox. It kinda gives you a snapshot of what happened in the
market the previous week from raw material, cost
side, through supply demand, pricing, and general economic. We also produce a podcast,
the Keep Building Podcast. It's available on wherever
you can get your podcast, Spotify, Apple, all of the above. We try to keep the market
as informed as possible. We figure the better The more informed our
customers are, the better it is for Majestic and the industry as a whole. - Yeah, absolutely. And again, majesticsteel.com. And as always, you can subscribe here to the Metal Roofing Channel
for updates just like this one. Comment down below. If you have any questions, we'd love to answer them on
a future episode on camera. As always I'm Thad Barnette, and I wanna give a special
thanks to Chris Billman, from Majestic Steel.
- Yeah, absolutely. Appreciate it. - And special thanks to Adam Mazzella, from Sheffield Metals. - Appreciate it. - And we'll catch you next time. (upbeat music)
