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
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
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."