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NASA Roundtable

‘It’s Still Good’

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MCN Editor Dan Markham In mid-October, at the annual meeting of the North American Steel Alliance, MCN Editor-in-Chief Dan Markham sat down with board members from the purchasing co-op to get a sense of the state of the steel industry heading into 2022. Here’s an edited transcript of that conversation. 

Joining MCN in the discussion were these service center executives and NASA board members:
David Bernstein, State Steel
Paul Blaisdell, McNeilus Steel
Byron Cooper, North Shore Steel
Rick Costantini, Scion Steel
Paul Gedeon, Lane Steel
Mike Morse, Morse Steel Service
Dave Rownd, Stark Steel
Roch Theriault, Altitube Steel
And these NASA guests: 
Dan Emerson, Huntington Steel
Rich Merlo, JDM Steel Service

MCN: Let’s start with pricing. When it does fall, and how far and fast does that happen? 
David Bernstein: It’s a tough one to figure out after today. I think we all feel it’s around the peak and probably heading down, but we don’t know. 

MCN: Do you expect a rapid descent or something more gradual?
David Bernstein: Our industry tends to gravitate toward the dramatic, whether we like it or not. 
Paul Gedeon: With fewer players, hopefully, they control themselves this time. 

MCN: On the mill side?

Paul Gedeon: On the mill side. 

David Bernstein:
On the service center side, it’s hard to say, I think the biggest risk most of us have is what the larger service centers end up doing, especially in the South, with imports coming in.

Paul Gedeon:
The inventory levels stayed low for the whole year. Normally when we have a really good market, people find ways to get more material. When the level is low, maybe the fall won’t be as bad. 

MCN: Will there be any long-term effects from this year-long pricing environment on manufacturing and the supply chain? 

David Bernstein: Most NASA members’ philosophy is to take care of their good customers with limited supply. Our hope is that our bond with our customers that we continued to supply during this period is such that maybe there’s less shopping for pricing every quarter. That might be naïve on my part. We have some customers we know are very appreciative of the strong relationship and supply they achieved over the last year. I think that goes for us and our suppliers as well. We were supported by most of them (suppliers) as best they could.

Paul Blaisdell: That ties in with one of your other questions having to do with NASA and relationships. That proved to be really important over the last six months – relationships with suppliers and customers. I think the people that just auction off every quarter were in a bit more trouble than those who had solid relationships.  

David Rownd: I don’t think there’s any doubt about it. When everybody’s trying to beat it down, beat it down all the time, the suppliers get tired of that. I think they, just like Dave mentioned, took care of their core group.

Paul Blaisdell: It comes down to numbers and allocation. If you’re in and out every month, you’re not going to get much on allocation. 

MCN: Will that be a lesson that’s learned?

Rich Merlo: Some will. Some won’t.
Dave Rownd: I think it was a lesson for some of the less mature buyers who have only been in the industry for a couple of years, who always took that approach to beat suppliers down as hard as they could. I think the more astute people figured out this is a partnership and we have to work together.

Rich Merlo: Except they were right 95 percent of the time. This is that 5 percent. 

David Bernstein: I heard early in the cycle, we had another NASA member who called me and said, ‘You know things are different when I have customers calling me and asking if I want to go out for breakfast.’ From our perspective, at the mill level we achieved benefits with those we had contracts with, and have to weigh that with falling prices next year vs. guaranteed supply. 
The mills honored our contracts to supply us. That’s worth something. From our perspective, it does enforce that strength in relationship. 

MCN: How difficult was it to get metal?

Paul Blaisdell: It depends on the commodity. Some things are still very tough to get, others have loosened up a bit. You’re firefighting every day. 
That also piggybacks on an earlier comment, where if you had really strong relationships with your suppliers, your supply side was a lot stronger than people who didn’t have those relationships. I think the good guys got steel. If you were a good customer, you got steel.

Byron Cooper: I’ll make a point on that. We’re pursuing a diversification strategy, new markets, new customers. Going to suppliers saying, ‘We’d like to get support, we’re pursuing this new market.’ If you hadn’t been buying that commodity from them for many years,  they weren’t going to support you. We found it difficult to get into new markets, we were almost blocked out in certain cases. 

MCN: Was that something you’ll continue to pursue once things loosen? 

Byron Cooper: We have a team of people trying to build relationships and convince them to work us into their allocation. Start small and grow. We’ll keep trying.

Mike Morse: With rebar, we saw that if there were any hiccups, it was just magnified through the supply chain. We had a mill go down on the West Coast for an extended period of time. In another time, we may have skated through that and not been so much affected, but there was a fire and the mill went down, and it was really difficult to get anyone to budge on anything. At another time we probably wouldn’t have noticed that quite as much.

MCN: How much better is it now?

Roch Theriault: I’m involved in tubing only, which is flat-rolled. Right now, I can only work on short periods.  We just got increased $100 Canadian per ton, which is for you guys maybe $50, and that one, we don’t know if it’s going through. Every request can be negotiated. A couple of months ago, that was it. That’s the price, this is it. Maybe within a month, it’s going to change. I can’t tell what’s going to happen in three to four months. It’s still good. The marketplace is good. The volume is good.
Rick Costantini: That’s what different about this compared with the last downturn. 

Paul Blaisdell: Some specialty tubing, DOM or cold-rolled seamless, the lead time on that stuff is June of 2022. 

Roch Theriault: There you have no choice. You go in or you don’t go. But your customers need those. You have to make sure they get some goods, whatever the price is. 

David Bernstein: One of the byproducts of availability is this year we bought way more material from other NASA members than we probably did in the sum total of all years, including from new members. We were constantly reaching out to a number of our peers on a daily basis. Sometimes we were inquiring for the same material of them they were inquiring of us. From all over the place. There were a lot of peer-to-peer member transactions to help fill gaps. Some people had something other people needed and vice versa. That was a unique benefit of NASA over the last year, was having all those contacts. I don’t know if we would have had the contacts without NASA.
MCN: How valuable was it to belong to NASA in this market? 

Mike Morse: It was for us. It was significant for us, particularly as we buy a lot of flat-rolled from another NASA supplier and they made it easy for us. 

MCN: Have your customers managed through this effectively? 

Paul Blaisdell: It feels like for a long time they were obsessed with that (supply). Now, it’s backed off a bit. Now they’re starting to be more cautious. The demand is still good, but it isn’t as frantic as it was. 

Dan Emerson:
I think something that helped in our market was everybody was struggling for all their different products, so everybody was having difficulty finding all of their components for their OEMs. It made the burden on us saying the price was increasing every time just like everybody else, so they seemed to take it a little better, rather than if it was just our commodity that was rising.  

MCN: It wasn't like there were alternatives. 

Dan Emerson: At least for us. it was a universal issue they were all struggling with, increasing prices on all materials and all supply issues. 

Roch Theriault:
You don’t know when it’s going to break.

MCN: Normally you would see a lot of imports, what was the status of foreign material?

Rich Merlo: The whole world market was tight, so it didn’t make sense even at the crazy numbers we got to bring it into the States. It took a long time, maybe a year? 

Paul Blaisdell: Now, people don’t want to commit that far out. 

Paul Gedeon: And now it could still be two-three months after that, because of how messed up logistics are. 

David Bernstein: It does seem like there’s a line where southern markets are more impacted with imports than northern markets. That doesn’t seem to have equalized nationally yet. 

MCN: So what will the new capacity mean to the supply situation? 

Paul Gedeon: I think it’s going to cause overcapacity.

MCN: How soon?

Paul Gedeon: Cliffs showed the ability to shut stuff down pretty quick, and U.S. followed them. I don’t think they’re going to want the numbers to come down fast, so I think they’ll pull some off. I don’t think there are any maintenance outages. If it starts going down first quarter, they’re going to have to figure something out pretty fast.  

Paul Blaisdell: I think mills are doing a better job of managing supply.

Rich Merlo: That’s what this is all about. We have a pretty smart guy at the head of Cliffs. He’s made it very public what he’s trying to control, what he’s trying to do. You talk about the discipline. Service centers don’t have any discipline, never had, never will. If we have steel, we’ll sell it at a price to get rid of it. What’s caused the discipline is the mills have kept it tight. It’s been the same for the last 40 years, and I don’t see it changing. If we do see excess capacity, if we see excess tons coming out, this whole market is going to take a dive. But if those smart guys at the top do what Paul said and control it, and shut some things down, it could stay in this upper tier, whatever that is. 

David Bernstein: It will be interesting to see what happens with Cliffs, it they decide to make pig iron in lieu of making coils and whatever that does for all of us. We’ll have to see what that does for them. To feed maybe some of the new capacity instead of feeding us. Probably a year from now we’ll look up and say, ‘Whoa, that was interesting.’

MCN: Let’s shift gears, how tough is the labor market?

Byron Cooper: It’s been really difficult in the Houston market. We’re down on the Gulf Coast, we’ve been running on average 30 to 40 open positions. We can’t keep up with it. Folks show up and on day three they leave for no discernible reason. We’re fighting that battle and investing heavily in culture. And things beyond just pay to get people to stay loyal to the workforce. We’re having some success, but in areas where we’re bringing back capacity, you have to bring in new people, which has been really hard in Houston. 

Paul Blaisdell: In the Midwest it’s the same. We have about 40 open positions, mainly second shift and they’re impossible to fill. We’ve increased our starting range by quite a bit, and it didn’t make a difference. 

Rick Costantini: We see the same thing, especially with our drivers. We seem to be losing drivers right and left. People are offered quite a substantial increase to leave. The operators on our machines, our lasers, we’re taking the opinion we’re going to train them internally and move them along that way, because we can’t find them out there. 

MCN: So are you losing them to others in trucking? 

Rick Costantini: They’re staying in Detroit, but some people are just throwing out crazy numbers and they’re jumping. We’ve had a pretty good loyal force for a lot of years. This is the first time I’ve seen people jump like that. For us, it’s probably the second biggest issue we have going, just keeping the place filled with employees, especially drivers. 

Byron Cooper: We haven’t been at full capacity this year, either in the plant or with drivers. 

Paul Blaisdell: The challenge with this market, as robust as it is, and we’re all trying to grow, but trying to grow your workforce has been the biggest limiting factor on what you can push out the door every day. For us anyway. You can’t run a second shift. You can’t grow, you can’t add machines and you can’t find new employees. 

David Bernstein: It seems like people have less desire to work overtime, post-COVID, I don’t know if that’s a reflection of quality of life or overall financial situation, but it doesn’t seem there’s the desire to get the same amount of overtime. Forty-five hours probably isn’t a big deal, but 50 to 55 hours doesn’t seem to be the norm that it was. 

MCN: That must exacerbate this issue.
David Bernstein: It can.

Roch Theriault: Same in Canada. We’re looking for people. You have to treat them well. Not only the pay. You have to let them feel part of the team. It’s more than it used to be. You want to keep them. You don’t want competition to pick them up. 

Dave Rownd: We’re competing against governmental issues as well, with the fact that a lot of these household incomes have been increased without having to go to work. They disincentivized people to go out and better themselves with a new job or more hours or overtime. 

Mike Morse: On the flip side of that, for sales or project managers, we learned something about working remote. We’ve been able to hire people who we wouldn’t have been able to hire before because of where they live or they work from home. That’s been nice for us, to hire some people we wouldn’t have thought of before and now we have working for us from remote places.
Byron Cooper: For a fair number of our employees who moved to virtual, they politely and respectfully said, ‘I’m not coming back.’ We need to really think about this as an organization, to the point where we had a town hall and we talked to them and said, ‘tell us how you feel.’ We want to make sure they felt heard. For us to say we’re going to go back and we’re going to go back to hybrid. They had completely changed their lifestyle, so we’re having to accommodate that as an organization.

Roch Theriault: And it worked? 

Byron Cooper: It is working. We’re having to evolve how we run the business. We couldn’t be stuck in our ways. That’s been an important part of it. 

Roch Theriault: I tried to bring them back two days a week, Mondays and Thursdays. Most of them said ‘Yes, fine.’ I got some who said, ‘I won’t do Thursdays.’ I said, ‘Make sure you still work Thursdays.’ ‘Sure.’ What can you say? You go home, you have fun with the kids. That’s it. It worked. 

MCN: If that works. If they’re producing for you, and you can give them something that’s not necessarily costing you anything, that’s a way of treating them well, isn’t it? 

Roch Theriault: But you can’t do that with the person who is cutting the tubing. Unfortunately.

MCN: We talked about trucking and logistics. How big a concern is that?  Is there any end in sight to it

David Bernstein: I think trucking is going to be a problem for a while. We’ve seen the labor thing get a little better in the last month or two. It was really bad nine months ago, six months ago. But trucking is a problem for a while. A lot of drivers left the workforce. 

Roch Theriault: Do most of you guys have your own fleet? 

Byron Cooper: We moved in COVID from an owner-operator fleet to a decided third party fleet because of this. We saw drivers leaving, we couldn’t keep up with the pay. We constantly had open driver positions. We finally said ‘Uncle’ and partnered with somebody who does this for a living. It’s their specialty. They’re better at it than we are. 

Roch Theriault: That’s what we do. 

David Bernstein: I was amazed over the last six to nine months how many times we backfilled loads for others who relied on commercial haulers because loads just didn’t get picked up. Loads were scheduled. I think you see this with employment on Indeed and interviews who don’t show up as well.  It’s too easy to go on a load board and take a load, and then find a better one and it’s too hard to cancel. It just seemed there were competitors constantly calling us because a truck didn’t show up. We see it on the scrap side, we see it on the new steel side. It’s just rampant.  

Paul Gedeon: A lot of mills are running out of space. The pickup ratio is way too low. They were in danger of shutting down because they had nowhere to put the finished goods. Then you get threatening emails  and you looked and all your stuff gets picked up, but people can’t get to it because of the low truck count. 

MCN: Where do you see demand  into 2022? 

David Bernstein: Ag is good. Yields are good. People are waiting for pricing to come down on equipment in some cases, but it seems like ag equipment demand will be good well into next year.  

Paul Blaisdell: I think ag, truck trailer is strong still. The only thing slowing it down is availability of components – truck chassis, truck axles, chips. You look at automotive and if that ever bounces back. That would continue to be a big impact into 2022, and that will affect demand, in things other than steel.

MCN: It’s not just the chips but other components as well, correct? 

Paul Blaisdell: Axles are big. I think that was a factor. One of our customers had 900 truck chassis canceled on him. That’s a big chunk of their 2022 plan. 

Roch Theriault:
We had a company that just built 1,500 cars they were supposed to deliver. They are just sitting in their yard. No chips. 
David Bernstein: It’s too bad Radio Shack went out of business. 

Rick Costantini: I know a couple of automotive dealers, discussing with them their inventories; they usually carry 800 to 1,000 cars on their lots. Now they’re carrying about 200. They want to buy any used car they see driving down the roads. I had a lease coming up. I couldn’t believe how many calls I got. They wanted to buy it. 

MCN: What are your big worries?

Rich Merlo: No. 1 is having too much inventory at high prices. That’s everybody’s worry.

Rick Costantini: Having too much inventory and having the price drop like a rock.

Rich Merlo: I think that’s why a lot of us haven’t bought as much as we could have in recent months. Everybody sees it coming and you want to take your fair share, but you also don’t want to get caught with a lot of high-priced inventory.

MCN: That will also help on the downside. If that attitude is prevalent, you won’t have so much of that panic selling you had in previous downturns. 

Rich Merlo: I think a lot of us are of the mindset we’re in for higher pricing, by a significant amount. 
MCN: That the new floor is higher than it’s been. 

Rich Merlo: Way higher. 

Roch Theriault: Steel is a commodity still, but it has to be at a good price. We want to be healthy, we need it to stay high. 

MCN: Ultimately, that would be pretty good for everybody if it stabilizes at a higher floor, right? 

Mike Morse: Why do we think that? I’m curious what makes you think it will stay higher? 

Rich Merlo:
What makes you think it will stay higher, or what makes you think it’s better if it stays higher? 

Mike Morse: I’m curious, what you said about ‘we’re in for higher prices.’ 

Rich Merlo: My reasoning, there are fewer mills, there are fewer guys in control, and they seem to be of like mindset, which is ‘don’t let this price drop way down.’ and do that by controlling production. And Dan’s point, which is a good one, is what happens when additional capacity comes on, and as Paul says, the old guys die out. 
If they keep them running, we run back in that same cycle where there is too much steel, the price goes down and everybody suffers. But we could have had this conversation 25 years ago. We seem to continue to repeat ourselves. 

MCN: What would a robust infrastructure package mean?

Mike Morse: It would be great over a five- to eight-year time period. Maybe not as impactful in Year 1, but overall it would be great for the U.S. economy. And for steel service centers. 
Paul Blaisdell: There likely aren’t immediate tons, but it would be a boost to consumer confidence, which drives a lot of what goes on here. 

Dave Rownd: It’s the kind of thing that would need to be over a longer period of time. 
MCN: What development would mean the most for the steel supply chain?

Paul Blaisdell: No chip shortage. Bring those chips on, demand will continue. That would solve some problems right away.

NASA's President Mike Wagner, left, is joined by board members Rick Costantini of Scion Steel and Mike Morse of Morse Steel Service.
(Photo by Dan Markham)