In late October, Metal Center News
sat down with the board of the North American Steel Alliance, the largest purchasing collective in the metal distribution industry. The leaders discussed conditions in 2019, expectations for 2020, trade policy and other issues affecting the steel industry.
NASA was represented by these executives:
- David Bernstein, State Steel
- Paul Blaisdell, McNeilus Steel Inc.
- Rich Costantini, Scion Steel
- Rich Merlo, JDM Steel
- Mike Morse, Morse Steel
- Keith Sabel, Sabel Steel Service Inc.
- Tom Sennett, Samuel, Son & Co.
- Roch Theriault, Accier Altitube Steel
MCN: How was business in 2019, and what are your expectations for 2020?
Keith Sabel: Lousy. And our Expectations going into 2020. We’re not sure where demand is going to pick up, I think if we can level pricing and not be in a waterfall down market, we can maintain margins better than we have been able to. For us, it’s the falling price and weakening demand, in the southeast where we are.
Rich Merlo: The rise of pricing in 2018 due to the tariffs on flat-roll, and then the fall, which has continued through just about all of 2019, has been difficult for those of us in the flat-roll sector. Demand isn’t bad, it’s just not super strong. I’m uncertain about 2020. I think our core industries are going to continue to be fairly buy. But if we have more capacity than demand, that always translates into not great news for the SC sector. I’m very uncertain about 2020.
Paul Blaisdell: 2019 was a pretty good year for us for us in the MW. We’re a full line SC, the tons were good, the dollars were good, but there was a fair amount of margin erosion. It wasn’t as profitable a year, but the tons were good. As we look closer and further into 2020, I think the best forecast for 2020 is we see it as being a pretty spotty year. We don’t see it as horrible, at least in the markets we serve, which primarily are ag in truck trailer.
David Bernstein: Ag is really skittish in our part of the world, slightly south of them. Ag manufacturing is really wobbly. We see a higher activity of credit issues presently than we have in a few years. It’s all in ag manufacturing sector. It’s both commodity prices, and around us, the ethanol industry has been decimated due to exemptions for refineries. It’s further cratered the corn price; it makes a very shaky customer base.
Roch Theriault: Being a specialist in tubing, I’m in the flat-roll. Business also. 2019 was a good year for us. Now it’s slowed down because we’re just before election. Every time there’s an election, especially in the U.S. and even in Canada, election, it’s gets more quiet right now. We have to get back to margins. Looking to 2020, we’ll see. What happens in the state affects Canada. When you cough, we get the sickness in Canada.
Tom Sennett: 2019 was a pretty good year, unfortunately then we had the GM strike, right when things were starting to slow down and pricing was hitting the floor, the GM strike hit, that was considerable dent in sales and activity, down 300,000 vehicles. That was a big one, hoping that gets pushed into next year where they’ll have to rebuild inventories. As we look into next year, I think it’s going to be down a little bit, but the whole key is if pricing will actually start to stabilize and come up a little bit because we’re at very low numbers. It’s going to be hard to sustain for the mills for sure.
Rick Costantini: We’ve seen the exact same thing most of these guys have. Pricing is horrible, Our volume is really not down that much, and we’re expecting 2020 to be a pretty decent year. We’ve got a pretty good backlog going in. We support the capital expenditure side in a lot of the automotive sectors. It seems to be pretty strong at the moment. They’re expecting to ramp up and redo all these plants for electric vehicles and/or autonomous vehicles.
Sennett: One of the things we’ve been saying about 2020 we’ve been struggling with the last year is hiring. We try to come up with new and different ideas to bring people in, but it’s been a The market is very tight. Really any level and any position, it’s hard to find the right people.
MCN: What’s your biggest worry going into 2020?
Sabel: Discounting the obvious, profitability, hiring and healthcare costs. Our wonderful federal government has completely dropped the ball on healthcare. We have wonderful options of Medicare for all and other silly proposals that can’t possibly work for our society. Certain jobs we have not been able to fill, the more niche jobs. labor is. Truck drivers, of course, very difficult. The State of Alabama has finally allowed that you can hire a truck driver at 18, instead of 21. However, we’re not very comfortable with an 18-year old driving 80,000 pounds down the highway and occasionally being less than observant. It’s very difficult.
Bernstein: For us, it’s going to be credit issues with customers, going into next year. Especially if there’s a ramp up and people need more credit, that’s my concern. Outside the obvious profitability issues. We’re starting to see UE ease off a little bit, so that may be a trend going forward. It’s been easier for us to hire in the last month or two than it was for the last 12 months.
Blaisdell: The biggest concern is general economic conditions with the election coming up and the uncertainty that creates. That obviously trickles into people’s expectations in the economy about what’s going to happen. That overall sense of uncertainty creeps forward into everything. It just feels like we’re right on the edge right now on how that plays out in 2020.
Mike Morse: I’d follow that than more specifically in the general economic, as the trade war plays out further and further, think the trade war is a short term resolution to a long-term problem, how does that impact investments. How does that play out during the trade war and after. If you’re investing something that is not competitive anymore because the trade war is off. How does that play out.
Paul: It ruins confidence in the marketplace.
Theriault: We don’t want to get to say the word, it starts with an R, recession. We don’t want to get to it. We have to stay away from it. Let’s get ready. That’s the biggest worry for me, and we have to be prepared for that.
MCN: How do you prepare for that?
Theriault: That’s the key there. I have young people, they’re used to always growing. They don’t know about the hard times.
Morse: I think you prepare by deleveraging as much as possible.
MCN: What’s the greatest cause for optimism?
Sabel: Our business is such a feast or famine business. Our only cause of optimism, by 2020, we should have hopefully already gotten to the bottom, and either we stabilize low or we begin to rise, In which case we can claw back some of the money we gave away during the fall. Our bigger box competitors have mastered minimalizing profitability by dropping prices in a falling market immediately, and raising prices very slowly in a rising market. Why would you drop your prices, when any type of type of steel goes down, and there is not one pound bought in your inventory Why do you drop your sales price?
Merlo: It’s simple, to get more volume.
Sabel: It’s just insanity. Instead of At least allowing your average inventory to go down, as you lower your price. That’s the way you’re supposed to do it. Not bailing out. The current method of pricing is very worrisome.
Merlo: Our customers are optimistic because they price is so low.
Sennett: A bit of optimism is we’ve kind of reached the bottom of where the price is going, and we’re doing that bounce along the bottom. That coupled with a trade agreement with China would absolutely be a catalyst. That takes a lot of question marks out of the economy. If they can Sign the USMCA agreement, get that done. Just a few of those types of thigs, which are right there to happen. As soon as those happen, it will allow us to focus on what’s important instead of worrying about what might or might not happen.
Blaisdell: If we ever did spend some money on infrastructure, the trickle down would be good for business. We talked about that two years ago, and whatever it was, a trillion dollar pledge, we’re all still waiting for that.
Theriault: Infrastructure in Canada. What I see coming all the projects that I want to put on. I have customers saying if I get that, I’m busy for the next two years, or the next five years. There are projects out there. The economy is good. You can see that. You can feel it. It needs to keep on that pace.
MCN: Is the outlook for infrastructure spending better in Canada?
Theriault: That’s where we are here. They’re spending money. They’re investing.
MCN: It’s been 18 months since the start of 232. What’s the continuing effect of them and what does it mean going forward?
Sabel: The tariffs caused panic buying; it drove the price up too far which always leads to the other side of the mountain. Overall, though, it’s probably kept the U.S. price higher than the world price. They’re selling rebar overseas for under 20 cents a pound. Same thing with coil products or close to that. It’s helped keep the supply lower than it would have been from overseas. Going forward, who the hell knows? If everything stays the same, eventually things will level out. If demand is there, then the price will find its way up. Maybe not to where it was, but that was due to panic buying.
Merlo: In addition to that, the 232s have kept out foreign material on the flat-rolled side for certain. The bad thing is news, the price continues to erode and there’s plenty of supply domestically. You look at a market like Houston, where is it going to end. The prices are close to $400 per ton in hot-rolled you talk about what’s happening overseas. Long-term, if they were lifted and things changed, and more material came in from foreign sources, I think it would be a bloodbath price wise. I’m concerned about the longevity and what happens.
Blaisdell: I think it pretty clearly eliminated imports and we’re still in an oversupply situation is a bit scary. I think they’re still talking about new capacity in the flat-roll in the future. I think there are two major mill projects being kicked about right now. The lack of discipline in the marketplace to let these huge swings occur. I think we’re heading to another run-up where price will hit the bottom, people will take positions and overbuy, and the price will start to come up, and we’ll ride these waves. We need a little more discipline to take these peaks and valleys out.
Bernstein: Not to be the contrarian, I thought 232 caused some capacity back online and It also buoyed the mills to add capacity as well. Everyone did well last year in 2018, the mills did incredibly well and we all did well. But the problem now, is how does that really adjust itself. The U.S. steel acquisition or partial acquisition is probably good because ultimately it helps them take some older capacity offline. It was like an artificial high that caused people to do things that in the end that exacerbated where we’re at right now.
Blaisdell: I think long-term, it will play out very well, because of the domestic reinvestment.
Sabel: It’s interesting to me that we’re still importing 400,000 to 550,000 tons of coil products every month, between hot-rolled, cold-rolled and coated. That’s a significant amount of tons. The breakdowns I see do not show where these tons are coming in from, although the majority are Mexico and Canada. I don’t see those being cut off. All the mills being talked about are all scrap-based EF mills. Does that mean blast furnace mills, which are predominantly or 100 percent in the north, do they go away? The EAF capacity, the Big River production abilities and efficiencies, is that going to knock the blast furnace guys out of business finally? If they can make exterior grade automotive steel, what is the great use of the blast furnace. If that occurs, then, all of the production is in the south and southwest, which is a complete reversal from the past. Just a question.
Merlo: There’s no question that mill is going to happen in Texas, You’ve got a company making a whole lot of money. That’s going to replace somebody else’s capacity. There’s no question about it. The new is going to take it out of the hide of the old. That’s the way it works.
MCN: Do you expect changes in how 232 is done? Could there be more quotas, more products downstream included?
Sabel: I hope they follow through on fabricated products being imported in, particularly from China. My limited understanding is the big projects are all coastal oriented, due to the logistics of moving big fabricated structures inland. In my sector on the gulf coast, it’s cost us business that would go to smaller fabricators, not to gigantic guys. They can’t get the work because it’s already done by the Chinese at extremely low prices. That’s a big source as far as NASA group is selling to structural fabricators. I hope that’s looked into and dealt with.
MCN: If you can make one change to trade policy?
Blaisdell: I kind of agree with Keith, I hope they do something about fabricated products.
Bernstein: I’d like to see them Come up with some resolution to all the ag-based stuff, in both directions, both crops and equipment.
MCN: Is that punitive damage in the overall trade war:
Bernstein: Punitive like China not buying our soybeans because they’re ticked off? I’d say so, it’s also causing a shift, that ultimately could be problematic. if people get used to Brazilian soybeans, that long-term could be problematic for us as well. We’d like to see some resolution in the Midwest, that gets pork, soybeans, corn moving again, and agriculture moving again, which is a segment of manufacturing that seems about 5-6 years very mediocre.
Morse: I listen to that kind of thing about ag and crops. I think it’s got to be less trade policy. I think that concerns me more than problems with tariffs. I don’t think those are long-term solutions. I’d like to see less trade policy.
Costantini: When there’s uncertainty, people are less willing to spend. They’ll pull back. The more they talk about it, the more uncertain they are, the les that’s going to happen. We’d like to see the rhetoric stop, and we’ll probably see an uptick.
David; Keith and I see it in scrap, as well, with the negative impact of trade policies depressing scrap, not just ferrous scrap but nonferrous as well, and seeing those routes change. That is probably holding flat-rolled down as well.
Sabel: That’s another sore point with me.
MCN: How will the 2020 Election affect business conditions?
Merlo: Typically in an election year, business tends to get better. No one really sees it in this room based on what we’re saying. Typically you’d see some stimulation from the administration to help their election woes, and maybe some infrastructure spending will actually happen this year. That would be awesome. That would make a huge difference. We’re all waiting for that to happen.
MCN: Let’s continue on infrastructure. How do we get from talking about what needs to be address and getting it addressed?
Sabel: Since everyone wants infrastructure, but nobody can find the money. I propose we downsize the Department of Energy, the Department of Education, duplication of committees and services in the government, take that money and put it in infrastructure. What does the DOE do other than issue reports.
MCN: So how is technology changing the distribution business?
Sabel: It’s made ordering steel much more efficient, I don’t like the fact that it’s becoming less person to person, but it has made ordering steel and checking material and pricing at the mill much better. It’s helped us in terms of our business and inventory management. GPS is a big help in knowing where your trucks are, being able to notify your customers is there’s a problem. Overall, it’s a benefit.
Theriault: Being able to collect the data, especially when you have young people. It’s faster, and better, doing the old ways. I have some of my salespeople, they’ve never met the customer, which is something I disagree with. They’ve been working years and years and it works. The new generation, that’s what it is. Most of the time they don’t talk. You don’t hear them. It’s good, it works.
Morse: We use technology to turn our inventory better. We do use a lot of technologies to get information from our customers. It helps us manage our inventory better. We’re stocking things for our customers.
Sennett: The biggest change probably we’re seeing is AI becoming a big part, it’s involved in Inventory management, it’s involved in our logistics, it’s becoming pervasive throughout everything were doing. In the next couple of years, we’ll all be seeing much more integration into all of our systems. Because it works It allows us to be better operators.
Theriault: We need somebody who can take information and be able to put it back into the system. We had an estimator; he forever knew the cost of that beam. That’s what we’re looking for. Chief data, not a chief guesser.
MCN: If you had president Trump’s ear for five minutes?
Sabel: How do you think you can make a deal with China, who has never kept an agreement to date signed internationally? Why do you think you can make a deal they would stick to? I don’t get it