The thrill is in the challenge. Well perhaps not always, but challenge is certainly what steel conduit suppliers face through at least next year. Yet despite the double whammy of a construction lull and the impact the financial crisis has had on business in the sector, there is hope that the worst is over.
"I think that we and other established producers will be fine, but I don't know if the same is true for anyone else trying to enter the market. It will be a very lean and very challenging few years," said Todd Walrod, vice president of sales and marketing at Louisville, Ky.-based Republic Conduit, one of only four major U.S. steel conduit suppliers. The other three major conduit mills are Allied Tube & Conduit Corp., Harvey, Ill.; Western Tube & Conduit Corp., Long Beach, Calif.; and Wheatland Tube Co., Wheatland Pa.
Calling demand "awful at best," having fallen 30 to 40 percent in most markets since the financial crisis hit last fall, one industry executive likened it to a teeter-totter. "Every day is a new day. For a few days it seems to be encouraging, but then it starts to fall off again. I believe the money is out there, but people are afraid to spend it."
There is a general lack of availability of business, said Kent Duran, national product manager at Graybar Electric Co. Inc., a St. Louis-based distributor of conduit and other electrical products. "About half of our sales go through some kind of contractor, and when they don't have as many jobs we don't sell as much conduit."
The reason for the lack of business is that there tends to be pretty much a one-to-one relationship between demand for non-residential construction and demand for conduit, "as conduit is just used in construction and almost all in non-residential construction," Walrod said. With companies unwilling—or unable—to make capital investments, non-residential construction, especially commercial construction, is weakening and isn't likely to see an improvement in business until mid- to late-2010, he said.
There are no real bright spots for non-residential construction anywhere in the country, the industry executive said, noting that the Texas/Arkansas area had been holding up perhaps the longest, bolstered by the resiliency in the energy market, "but even that market is hurting now."
The only possible exception is the New Orleans area, where—four years after Hurricane Katrina—there is finally a substantial amount of construction. "But while New Orleans is now the hottest market nationwide and could remain strong for a number of years, it isn't hot enough to save the year," Paul Vivian, a principal at Preston Publishing Co. Inc., St. Louis, said.
In contrast, building in Las Vegas—the hottest market prior to the financial crisis—is "totally on hold now," the industry executive said, adding that with convention business way down a lot of hotel construction and upgrades have been put on the back burner.
Las Vegas isn't the only place that a lot of projects have been shelved or canceled, according to Duran. "A lot of companies have cold feet. They don't want to accumulate more debt than they have now," he said. "The economy and the credit crunch are intertwined. The credit crunch has kept contractors and end-users from getting the funding they need."
And despite government efforts to bolster the financial sector, Walrod said he hasn't yet seen credit start to flow. "While some people say that credit is starting to loosen up, we aren't seeing many new major projects that weren't already well under way either being added to the pipeline or getting financing."
And whether the American Recovery and Reinvestment Act will give the industry a boost remains to be seen. It is likely there will be some impact, but just how much is unclear.
Walrod sees the bulk of the influence from the economic stimulus program being most keenly felt on the public works side of the business, including highways, bridges and infrastructure remodeling and repair work. "We have already seen some money allocated to highway projects previously put on hold," he said. But if the stimulus money is used for certain buildings as well, it could have more of an effect on the conduit market. Duran noted that Graybar had received some orders for conduit from the military to support the Afghan war effort.
In general, any boost to the conduit industry won't be felt this year, the industry executive said. "It will take time for any benefit to be felt by conduit suppliers."
Duran agreed, noting that he had seen a slight increase in inquiries recently, "but quoting activity is not nearly as much as it had been in the past," and with the downturn in demand, conduit prices have fallen 30 to 40 percent from a year ago.
The industry has been struggling to keep conduit prices above those for steel, but hasn't been all that successful, the industry executive said.
Duran noted that with conduit order books so weak, he wasn't sure that announced mill price hikes would fully stick.
In fact, Allied Tube laid off 93 workers at its Phoenix, Ariz., manufacturing plant in late June, leaving only 100 workers at that facility. The company had shut its Pine Bluff, Ark., plant in September last year. While there have been no other publicly announced closures or production capacity idlings, most conduit makers reportedly are running on a modified one-shift basis four to five days a week vs. multiple shifts for six days as recently as a year ago.
"I don't think anyone is expecting to see any signs of robust market conditions this year," Duran said. "Hopefully the market erosion is behind us, but I don't expect to see any celebration parties at least until late 2010."