CHICAGO Soft demand and
weak carbon steel pricing are likely to persist during the rest
of 2013, Reliance Steel & Aluminum Co. executives say,
noting that March was, for the first time in recent history,
the weakest month in the first quarter and that April average
daily shipments are so far showing little
"Pricing was down across all
product groups, with carbon down 10 percent," chairman and
chief executive officer David H. Hannah said on an April 25
earnings call when discussing the companys first quarter
vs. the same quarter last year. "Demand was softer than
anticipated, particularly in March, which traditionally is the
Automotive was the only market
where volume increased year over year, he said. Nonresidential
construction "is showing signs of life, but demand remains
below peak level," Hannah added.
At the same time, economic
uncertainty, excess steel supply and short lead times are
magnifying flat-rolled producers inability to hold firm
on pricing, Reliance executives said. "We are supportive of
price increases, but somebody always breaks ranks," chief
operating officer Gregg Mollins said.
Still, the company is optimistic
things could firm up ahead. "We are at the bottom in terms of
carbon steel pricing. There is nowhere to go but up," Hannah
Asked about steelmakers
recent resolve to move away from discounting off the CRU index
for hot-rolled band, Mollins said the practice is "extremely
unhealthy for our suppliers. The discounting should and will go
While visiting suppliers this
year, Mollins heard "a tremendous amount of discontent" about
discounting off CRU, he said.
"Could it (the index
theoretically) be manipulated? Yes, it could," added Hannah.
"That is part of the issue. If discounting goes away,
thats a positive."
Looking at the market, Reliance
executives said overcapacity is still a major issue keeping
steel under pressure.
"There is too much domestic
capacity as it applies to demand today and in the future,"
It would be better if imports
went away and domestic mills could operate at high utilization
rates to meet the demand themselves, but that possibility is
limited, said Hannah.
Reliances top executives
said they are also hopeful a domestic producer, not a foreign
entity, will acquire ThyssenKrupp AGs mill in Calvert,
Ala. "That would be our dream come true," said Mollins, noting
that slabs to feed the mill would therefore likely be sourced
in the United States and the new owner would have incentive to
stabilize spot pricing.
"Its problematic if
someone from overseas managed sales and pricing as it is now.
But if a company like U.S. Steel (Corp.) got their hands on it,
it would have a positive influence," he said.
"The main thing is to get some
discipline in there. Right now, thats lacking," Hannah
In the three months ended March
31, Reliance reported net income of $83.7 million, down from
net income of $116.2 million in the year-ago quarter, on sales
of $2.03 billion vs. sales of $2.29 billion in the same