Managing this high-priced and supply-constrained market can be challenging without the right information. Yesterday, Chris Billman moderated a discussion with Todd Leebow and supply and sales leads, Alex Fuller and Ed Slish.
Read on for a recap of the market, how to adapt, and our 2021 outlook. Feel free to contact your Majestic representative if you have any questions.
The current steel supply shortage is not temporary. The divergence between supply and demand has continued to widen.
- – Today’s market is not comparable to historically tight markets, such as in 2008 and 2018, because of the hyper consolidation that’s taken place amongst mills. Now there are just four domestic steel producers that account for 85% of production combined.
- – Suppliers do not have excess capacity that could be brought online to support existing demand. These supply constraints will compound because of – pent up liquid capital, deferred maintenance that can finally be performed, consumers spending on homes, and purchases of steel intensive consumer goods accelerating.
- – Domestic inventory is at historic lows and there are not enough imports available to make up for the shortage.
ADAPT AND PLAN
Historical outcomes will be less helpful in predicting these market cycles. The most successful steel buyers and sellers will be those that shift their mindsets in order to manage their markets.
- – Not every company that needs supply will get supply. If you are a steel buyer, no longer will steel come to you. Be prepared to ‘sell yourself’ more than before. Think about the things a seller would want to hear if they’re deciding between you and another company, for example, show you’re posed for growth, you take your material on time, pay bills quickly, etc.
- – Plan: do your best to forecast 6-9 months out, run what if scenarios, have alternative courses of action, and communicate with your customers when you or they need to reforecast.
- – Align with the partners who will be able to supply you beyond just the next purchase. Steel is beginning to decomodify- it’s no longer just about who’s going to give you the best price, it’s about availability. Think longer term.
For the remainder of 2021 and into 2022, our industry’s conversation will center around supply. The question will continue to be: ‘is there enough steel to support rising demand?’ Our sense is current challenges will continue. Demand outpacing supply is not temporary.
- – There are multiple drivers causing the growth in demand. The pending infrastructure bill, home improvements caused by changes in lifestyle post COVID, and pent up demand across industries are only going to add to the spike in demand for steel.
- – In previous cycles, foreign supply was imported to help meet domestic demand. We do not see foreign relief arriving because global supply is equally, if not more, disrupted than the U.S.
- – Consolidation should be expected amongst service centers because company valuations are spiking alongside prices, meaning companies could be looking to take advantage and sell.
- – With the current supply and demand imbalance it won’t be until at least 2022 before supply constraints loosen.
A link to the full webinar video recording can be found here. We had a lot of great questions come through and we’ll be following up with those answers shortly. As always, we welcome feedback to ensure your experience with us is Majestic and look forward to seeing you at our next webinar. If you’re interested in receiving additional real-time market information, we encourage you to subscribe to the CORE Report or reach out to your sales contact.