Leaders of the North American Steel Alliance sat down with Metal Center News to discuss the conditions facing the steel market as we head into 2024. Participants:
David Bernstein, State Steel
Paul Blaisdell, McNeilus Steel
Kirk Brannon, Brannon Steel
Rick Costantini, Scion Steel
Dan Emerson, Huntington Steel
Paul Gedeon, Lane Steel
Dan Kelly, Benjamin Steel
Dave Ketchum, Fabricators Supply
Mike Morse, Morse Steel Service
Dave Rownd, Stark MetalMCN: How were business conditions this year for you guys and what direction are they trending right now?David Bernstein:
They’re definitely softer than they were earlier in the year, but not as soft as we anticipated with all the recession talk. I think we have a solid outlook for next year as well. If you took it over the last 20 years, things are pretty darn good.Paul Gedeon:
I would agree. We had a much better first half than we anticipated. We had a little softening July-August into September and it’s picking up again. With prices rebounding, fourth and first quareter are going to be really good. Dan Kelly:
We are still trying to normalize business condition trends post-COVID. There are definitely markets that are soft, but overall it’s better than anticipated.MCN: What are your expectations for next year?Paul Blaisdell:
Everybody is pretty optimistic, but there’s a lot more uncertainty going into ’24 then there was going into ’23. For us, one of the big things we’re watching is the effect of residential construction. We feel like there’s going to be a trickle down from that slowdown that will take a while, but we’re starting to see signs of it now from OEMS that are involved in that market. Once they’re affected directly, it trickles down to other stuff like trailers, skid loaders, trucks. It’s all relative. We still forecast a pretty strong 2024. Dave Ketchum:
One of our biggest concerns is the OEMS are forecasting maybe a 10 percent drop. Typically when recessions come in, their 10 percent is not low enough so it could be 20 percent. That’s when we get concerned about is how accurate are your forecasts. Yes, they’re predicting softening, but with these high interest rates the concern is, is it worse? That’s the unknown – how bad is it going to be? MCN: What are the strengths of the market?Kelly:
Certainly in Ohio, nonresidential construction is very strong. At least in our neck of the woods. Lexington, Louisville, those seem very strong.Bernstein:
Ag seems decent.Blaisdell:
Ag is pretty good. Commercial truck is pretty strong, just affected by availability of trucks. The EPA standards haven’t been met in some states. I think there’s more demand than trucks available. Gedeon:
We’re doing a lot of solar. I don’t know where it’s all going. I thought there was a panel shortage. All of our stuff is for brackets. It just comes in and goes out. Where’s it all going? Ketchum:
I was with our new tube mill in Columbus. I don’t know where it’s going either but it’s a lot coming. The south in general, heavy truck is still pretty solid. It may not be as good as this year, but it’s still going to be solid. The biggest issue is labor is still tight. MCN: Weaknesses?Kelly:
Residential construction, OEM fabrication.Dave Rownd:
I think the overall economy is a huge weakness. Inflation is still at record high over the past three years. All these employees are having a tougher time going to the grocery store. Filling their gas tanks up. The trickle down of the total economy. Now we have the geopolitical issues going now. That doesn’t affect anything until we start lobbing bombs. But the overall economy is just really stressed. And we’re starting to see people do some serious pullback that are having to borrow money.Gedeon:
We do a lot of metal buildings. We have haves and have nots. The have nots are the guys who were on a rapid Amazon fulfillment center pace forever. Those backed up. But the other people are catching up to Amazon, so that side’s busy. It’s weird how in the same industry, one’s great and one’s not so great. Bernstein:
I’d say things like lawnmowers, trailers for four-wheelers, campers -- stuff everybody bought during COVID. You can get a pretty good deal on a Peloton is my guess. Kelly:
Consumer debt is an issue that’s going to blow up at some point, I think. Before then people will stop buying consumer goods. MCN: What is the biggest opportunity for upside and biggest threat for a downturn? Kelly:
In our area, electric vehicles are huge opportunities and everything that’s associated with them. I think it was mentioned before. We don’t supply automotive directly, we supply those who do fabrication for the automotive industry. All of that assembly line is going to have to be reworked and there’s a lot of opportunity for steel. Along with battery plants. Kirk Brannon:
We’re still seeing reshoring taking place on a positive side of things. The risks people experienced in 2021 and 2022, people are tired of going overseas and being disappointed when they’re not getting the product. Does that mean it’s good for Canada, good for U.S., good for Mexico? Well, it’s a fair chance for everybody. We’re seeing more opportunities coming our way from a quoting standpoint.Kelly:
Infrastructure the next 24 to 48 months will have a positive effect. Dan Emerson
: I think data storage will also be big. Gedeon:
We hope that takes over from Amazon.
Mike Morse: In Seattle, there’s been a lot of infrastructure built over the last 10 years, and a lot of the catch up to that, the apartments, the condos, the work around light rail, continues to plug forward. And the question I have is, with interest rates as high as they are, what happens when the demand for the build out meets the higher costs of money? MCN: Have you seen the effects of the various government spending projects yet?
Just the solar. Those guys are ready. They met with us several times. The day that happened the steel came in within three weeks. That’s the only one we’ve seen take advantage of it. MCN: How’s the supply situation? Bernstein:
It’s good. Lead times aren’t bad. Gedeon:
They’re not quoting December though, because they got burned in November.
Supply is good. We would just like to see prices stabilize. MCN: We have consolidation and expansion. What are your feelings on the state of the mills and how it will affect distribution?Gedeon:
Hopefully, with now it’s down to three or four major players, there’s less up and down volatility. Before when there was like 15 players, it took a while for the market to turn. Because there would always be somebody needing an order. But now, with four players, I was shocked the numbers went down as far as they did, but they raised them pretty fast the last three to four weeks, without even announcing. I’m hoping there’s more consistency. I’m surprised I’m not seeing it already with four. Coated high and low. Coated was low of 40, high of 68, back down to 40. Now it’s closer to 50 in three weeks. This yo-yo thing I thought would be less by now. Bernstein:
No matter what we say, by the time this gets printed it will be different. Kelly:
I do think the mills have made a tremendous amount of money over the course of the last three and a half years. I think they understand the need to reinvest in new, more efficient, EPA-friendly mills, and are shutting down inefficient, less environmentally friendly mills. Hopefully, long term that’s a good thing, at least from a world supply-demand balance and leadership standpoint.MCN: What’s the impact of imports?
It’s very little. It’s only been competitive in a couple of situations. I don’t think a lot of people are taking advantage of it, as far as I can see. Brannon:
We’ve had orders running four to five months late from overseas. We’ve really cut back on those types of purchases because they’re unreliable. Rick Costantini:
Less speculation.MCN: And price is becoming less of a driving factor.Kelly:
That may change as things get softer and competition gets a little more intense. Then pricing comes more to the forefront. MCN: Speaking of that, what are the thoughts on pricing?Bernstein:
If you look at the futures, it seems like things are heading pretty quickly to a quasi-stabilized level for the next year, which everyone seems to be buying into, at least presently. I’m sure next year won’t look like what the futures curve looks today.Gedeon:
Has anybody ever looked at the futures past vs. what actually happened?Bernstein:
We do at times. It’s always just a sentiment of what people think is going to happen going forward, not really what’s going to happen.MCN: Some stability would be welcome.Bernstein:
This year felt like it fell into a normal cycle. There’s always a running joke that steel usually bottoms out right before this NASA meeting. This NASA meeting has jumped around a little bit. Realistically, it may have come true. That late-September, October cycle, rebound going into next year was pretty prevalent, at least before COVID. I don’t know if we’ve seen it since COVID.Gedeon:
They need to get prices up before contract season. Kelly:
Strategically, you had an opportunity the last three years from a business conditions standpoint as well as a confidence on market and pricing to maybe make some money on your inventory. We’re no longer trying to make money on our inventory. We’re trying to balance the supply with market demand. Again, not having confidence in the pricing direction one way or another.
Looking at the cost of money on a line of credit really dampens the idea of wanting to make money on your inventory. MCN: When we last spoke, labor was a major concern. How is that now? Is that better? Kelly:
Quantity or quality? Costantini:
We see a lot of pressure from our employees. Especially with the automotives looking at 20 to 30 percent increase. That trickles down really quick in Detroit. It’s like constant. MCN: Compared to when we last spoke, has there been a lot of upward pressure on labor costs?Gedeon:
If you want a staff, you have to pay. Bernstein:
In our part of the world, it’s definitely better. The labor market is looser. You can hire people. It’s not great, but it’s better. Gedeon:
I would agree. Blaisdell:
Second and third shifts are still very difficult to staff. Wages are up to the point where, even on the shifts where you used to count on overtime hours, wages are up to the point where employees don’t need overtime. We’re losing that part of the labor, too. Generally, better, but we’ve had to adjust operations where we just expand first shift rather than try to run second or third shift. Rownd:
When the overall costs are up 50 percent on everything, whether it be healthcare, general wages, everything across the board. It’s just more expensive to operate than it was the last time we met. Bernstein:
Healthcare still ends up being something extra special to deal with, in a bad way. Morse:
What does that say? We were talking earlier about concerns rising consumer debt, and you’re saying people aren’t interested in working overtime?
Bernstein: I think people shifted around COVID. It seemed like there was a shift away from overtime. MCN: That was the issue you mentioned two years ago, that people who normally would have taken overtime either were not taking it at all or much less.
It’s people stepping back and reflecting, saying, I don’t want to do that anymore. There’s a certain amount, 44 to 45 hours, that seems like a good balance. But we don’t see the desire to go higher than that. Where as we used to in certain places, folks who just wanted to grind it out. Brannon:
I still think there’s a problem of labor, and the problem is the quality of labor. At the end of the day, we would fire probably 10 percent of our staff tomorrow if we could get better people. One of our bigger customers, they’re not hitting their forecast and it’s carrying to first quarter of next year. They have sales, they can’t build enough forklifts because they can’t get enough people. It’s quieted down, but it’s six months or a year from being a big problem again. It’s not gone away, it’s just quieted down. Bernstein:
The demographic numbers aren’t going to be there for people entering the workforce. People are exiting the workforce. There was a big session at SMU where a guy touched on that. It’s not been in our favor as employers for a while now.Kelly:
If we could figure out our legal immigration issues and language barrier issues, I do think that is an opportunity, to fill some of the unskilled, lower-skilled job positions. But that’s a long way off. Bernstein:
Automation is key for whatever we could do. And immigration, there’s a lot of visa programs to get highly skilled folks, maybe over-skilled folks, especially in fab work. It’s a lot of paperwork and overhead and it’s usually dealing with some third party to help find those folks, but that’s probably going to be where we have to look to a point. We have to start making kids or something. MCN: Somewhat relatedly, what is the state of the transportation market? Kelly:
Both inbound and outbound trucking have become extremely expensive. That’s one area our industry needs to figure out is the value of our trucking. I think there needs to be a shift from that standpoint. It’s always been ‘included’ in the order. I think we need to separate that at some point in time. It’s just too big an expense, and too valuable understanding what’s transpiring in the logistics industry. We see Yellow Freight going out of business. Those were short-haul. It’s box stuff, but they didn’t create the value they need to create with the expenses that were going on. We undervalue trucking. Gedeon:
It seems like it’s double the cost. We’ve added to our fleet and it has helped contain it somewhat. But when somebody posts a sign that says, ‘We’re going to pay $35 for a driver,’ and your driver drives past it every day, it hurts the advantage you have by having your own drivers. Common carrier wise, it’s definitely doubled wherever you’re shipping. Kelly:
It has gotten better from a supply standpoint. Bernstein:
Trucks have gotten looser. It’s changed dramatically in the last six months. We were waiting on straight trucks for two years and builds kept getting pushed out. Then in three to four to five months, we bought eight trucks for delivery by the end of the year. Semi-tractors are probably similar. It was ridiculous for a while, you were buying trucks a year and a half out. And they would surcharge on that. You don’t have to pay the surcharge and we’ll drop the order. It was a crazy market for a long time. MCN: We’re three years removed from COVID and the heart of the shutdowns. How has the industry changed since then?Rownd:
From an inside sales position, a lot of people are having their inside sales work remotely. Technology has allowed some of their inside sales not to come in. You wouldn’t know it calling in. Some of the back office stuff is still remote, although none of us really like remote. But getting back to keeping employees happy. The people who were commuting an hour are happier to sit at home, and the customer doesn’t really know they’re sitting at home. Gedeon:
The one thing that’s kept being said, all of our costs are a lot higher than three years ago. That’s the main thing.MCN: And that would be semi-COVID related?Gedeon:
Right. Or maybe it was supposed to happen, but COVID helped it along. Brannon:
When you’re hiring new people, you have to be very aware of COVID and allowing people to work at home. That never existed before. And we’re still trying to measure how people are working at home. It’s a little difficult to figure out. From a management standpoint, it’s a bit of a struggle for us. We know we have to deal with it, but dealing with it is two different things.
I think our infrastructure for remote work has gotten better and we still have a lot of people working remote. Not 100 percent. But a lot of people who work remote at least a few days a week. One of the challenges with it is it does make them a little bit more of a free agent. I saw it first as an opportunity to hire people outside the region that we normally would because they don’t have to sit in an office all day. Now I see that it’s easy come, easy go. It’s easier for them to say, ‘I’m going to work for somebody else because I’m sitting at home. I don’t have to sit in an office.’Gedeon:
And they’re not as connected to the people. Morse
: That does drive up wages because you’re thinking a lot more if you’re keeping people. Am I making sure I’m not losing people?Kelly:
Beyond the whole work flexibility thing, I don’t see a lot that’s changed from COVID day to day. It’s pretty much back to normal. We have one person in our warehouse who continues to wear a mask. Beyond that, it’s business as usual. Brannon:
I think all of the safety procedures we put in place for COVID are all gone. Everything we did from a shop standpoint to try to keep people away. It’s handshaking. Lunch time has changed. I’d say everything has gone back to normal. MCN: How does the steel distribution look 10 years from now?
Costantini: On a beach somewhere. Emerson:
We’ll probably have fewer employees in 10 years. MCN: By choice or...? Emerson:
By force. I’m talking on Artificial Intelligence tomorrow. That’s the big looming thing coming our way. With all of this consolidation coming on, big players get to invest in that pretty quickly, their costs go down. If technology does what I think it will do, costs go down and it will be tough for the little guys to keep up with that if they didn’t invest early in AI. They’ll be able to reduce their labor force, increase efficiency. Ten years from now could be a completely different place in the market and across multiple industries. Probably less so manufacturing.Brannon:
I know with capital investments now, we’re looking at automation, material handling with less labor. I’m trying to figure out how to move more tons out the door with fewer people, whether it’s investing in machinery or AI. It’s huge. It’s survival for us. You go to parts of Europe, you see way more. We’re slow to adopt sometimes. When you invest, it’s our money, not everybody else’s. That’s what we’re looking at now. Kelly:
I think there’s a real, great opportunity. I think steel consumption and then demand is going to go up overall. If we understand the whole material handling efficiency necessities and improve the manufacturing side of the business, I think there’s great opportunity.MCN: It’s a presidential election year. What does that mean for business?Bernstein:
I don’t think it means much, at least in our part of the world. It’s great for people selling TV and radio and print ads, but that’s it. It’s like the auto strike, that has impact, but that eventually settles and shakes out. I don’t feel any discussion we have with customers, that’s remotely entering the dialogue.
I think here are bigger things going on that impact business decisions. The overall economy and two wars. Those are bigger than the election in terms of how people make decisions.
If anything, it contributes to the uncertainty about people’s feelings toward 2024. It’s not like everyone is numb to it. It’s such a mess, nobody feels really great one way or another. Bernstein:
It might already be baked in. Like the auto strike got built into pricing months before the auto strike started.