CHICAGO The early months of 2013 are proving significantly more challenging for steel distributors, Reliance Steel & Aluminum Co. chairman and chief executive officer David H. Hannah said, with sagging metal pricing said to be the main culprit for uninspiring industry performance to date.
"Our first quarter versus a year ago is like comparing night and day," Hannah said May 8 at Wells Fargo Securities Industrial and Construction Conference in New York.
Last year, pricing on all Reliances products were going up, he said. "This year, all of our pricing was going down. Going into 2012, there was optimism. This year, there was a lot more uncertainty," Hannah said.
Reliance executive vice president and chief financial officer Karla Lewis confirmed this year is shaping up very differently than last year, largely due to the pricing situation.
"Pricing is important because it affects buying patterns," Lewis said at the event. "Last year, customers were trying to buy ahead of price increases and bought more early on. This year, in spite of announcements, they didnt expect the increases to hold and there was no reason for them to buy early in the quarter."
An improvement in demand "would help mill capacity utilization, and they would probably be able to get a price increase that would stick because their lead times would move out," she added.
With lackluster demand, fast deliveries and compressed pricing, "mills are now at the mercy of the cost ratio. And they cannot do much about it," Hannah said.
Also putting downward pressure on the market is the widespread practice of selling steel at a discount to the published CRU index price, Hannah said. A number of major mills, including ArcelorMittal USA LLC, Severstal North America Inc. and Nucor Corp., have separately announced plans to stop selling at a discount to the CRU price (amm.com, April 18).
"I hope they stop discounting. (The issue) has nothing to do with the index itself. Its mills undercutting one another and then the discounted number gets reported (back into the market), which perpetuates (lower pricing)," Hannah said at the conference.
Lower steel prices also have a trickle-down impact on Reliances share price, Lewis noted. Reliances leaders "hate to see our stock price move with the price of hot-rolled coil. And we all spend too much time talking about that price even though hot-rolled coil is not a big component of our business," she said. "Our business is about navigating through changing market conditions. Our people are good at that."