- Today on the Metal Roofing Channel,
we're back with another metal market update.
We're gonna talk about steel, aluminum,
where the construction market is headed
in quarter one of 2022.
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What's up, guys, welcome to the Metal Roofing Channel.
I'm Thad Barnette, make sure you subscribe if you're new.
We release metal roofing and metal construction content
every Monday and Wednesday.
Today we've got another update for you
for quarter one of 2022.
So today I've got Adam Mazzella from Sheffield Metals,
a metal roof manufacturer in the United States.
And tell us a little bit Adam
about where the market is right now
and what we've kind of seen.
- Yeah, so we're coming out of just this extraordinary time
because of the pandemic and all this pent-up demand,
and everybody's spending time at home to just this thing,
when things opened up and really let loose,
the market exploded.
And this is already a market
that was challenged with labor.
It's a market that most people in our position,
or I'd say the entire market was challenged
because of supply chain issues.
So, most people were on allocation,
a lot of people couldn't get things
as much as they'd like to get
to be able to service all of this pent-up demand.
So, I think what we're seeing from per really August of 2020
to where we're at today, January, 2022
is I think a lot of that stuff
is starting to soften a little bit.
I would say the market is still relatively strong,
the architectural billings are still up,
but we are seeing some softening.
A lot of the indexes that we're seeing in the steel world,
the aluminum world, they're starting to creep back,
I'd say, to more reasonable levels.
It's not dropping like a rock, which is encouraging,
but things are starting to, we'll call it stabilize.
Now, what does stabilize look like?
What does that mean?
The pricing and the market is going,
I think is to be determined,
but the extraordinary event of the market opening up
and really the significant amount of construction,
particularly metal construction
that's occurred in the last 18 months
has been extraordinary.
It's been extraordinary for the industry,
it's been extraordinary for homeowners, home builders,
as you've seen your investment in your house
or your investment in your building
has done nothing but appreciate.
And then you're adding value on top of that,
modernizing your project on top of that.
So I think we're seeing a lot of things
starting to peak out.
So the market could still stay strong,
but there's a number of factors
that really go into, where things are gonna go from here.
And then I'll be honest with you,
a lot of it is speculation, but just kind of looking at
where we've come from really the last 24 months
give or take,
to where we feel things are gonna be going into 2022.
- And we get into some more product specific stuff
here in a second,
but I wanna get back to what you said about the design side
and the architectural indexes.
Can you talk to us a little bit about that?
Explain why that's important and where they are right now.
- Yeah, so the architectural index is,
again, we're in the first week of 2022,
so we don't have any data for December,
but things are still trending in a positive light.
They're trending down a little bit,
as far as the architectural billings.
However, they are still viewed as a positive light,
above 50 is positive, November.
And then all the prior months say all of 2021
were positive from the architectural billing standpoint.
They are softening, part of that could be the seasonality.
We are in the winter,
certainly not as much construction happens
or construction doesn't happen as fast in the winter.
So, I think people could also be saying,
hey, these products are extremely expensive.
I'm gonna be paying a premium,
what if I wait three months, six months?
But as far as the billings go, we're still building stuff.
Things are still being "Commissioned"
to be built in the future.
So, from that perspective,
they're saying and projecting
that the market is going to stay strong.
Now, there's a number of things
that could continue to drive that number down,
but we don't have the December numbers.
Certainly, we don't know what the market is going to do,
but we feel it's going to at least stay strong
in the first quarter to the first half of 2022.
- Now, we've seen steel,
does the price of steel come down recently?
Is that something that we can expect to see
going into the future and going into 2022?
- Surely, I think a lot of the steel prices is really tied
to a lot of the supply chain challenges,
man, you see the things in the news
about the chip shortages.
A lot of the automotive manufacturers didn't even come close
to what their targets for 2021 were.
And a lot of it was,
hey, we can build as many cars as we want,
but we can't complete them, we can't put chips on them.
So we're only gonna build so many that we can complete.
As companies recover from the chip shortage
and have a high demand for more automotive products
I'll say say,
that is a huge consumer of flat rolled steel products,
which is the world that we plan.
If the automotive world bounces back dramatically,
there might not be this continued landing,
it could actually drive the price back up
into new higher levels.
So, we don't really roll the dice with the market,
we buy what we need as we needed.
It's kind of, we follow the market up,
we follow the market down,
and everywhere in between, the anticipation is, is that,
we think the market's going to soften a little bit.
You're looking at December, January, February,
the traditional slowest construction months of the year.
And it really depends on where the supply chains go
that will drive other complimentary metal products
from there.
- So we've talked about steel, what about aluminum?
Are we seeing the same thing?
Is it acting a little differently?
- Yeah, I think the aluminum world's a little bit different.
The domestic steel world for instance,
has a lot of mills across the country.
Really the domestic aluminum market is dominated
by two primary mills.
So, I think aluminum has inherently behaved
a little bit differently.
There's not as many products
that are dependent on the chips like the steel world is.
So, the aluminum world,
I think is a little bit different
because the demand for aluminum is still extremely high
and that market, it peaked, it came down,
and then it seems to be going back up again.
So I think aluminum prices will continue to stay
on the higher end.
We're not anticipating aluminum prices dropping.
We've seen increases in fab charges.
The domestic mills are pretty much maxed out
at what they're willing to provide in our product mix.
And we're actually starting to see more and more import
come into the United States.
So, we think that,
that is gonna keep that price relatively high,
part of it is how much of the import comes in
that's gonna drive pricing pressure back down.
- So you mentioned earlier
that we've seen that construction demand overall
really explore in the last couple of years.
Is that something that you see continuing?
- I think it's gonna depend by market.
So, if you look at a lot of the things
that were hit hard by the pandemic,
you didn't see as many people at malls,
movie, theaters, retail, things like that.
I don't think retail is gonna have just this major boom,
I think when people start to feel real comfortable,
again, coming out of the pandemic,
then we'll see a big retail boom, kind of looking at it,
we're seeing where are people spending their time
and that's where the money is being spent.
So a lot of residential construction,
residential construction has been enormous.
I think we're still gonna see strong construction demand
on the residential side.
I think that'll certainly soften if the prices continue
to just go, go, go.
The other big challenge that we're seeing
that could keep prices high,
that could keep demand relatively high
is the limited skilled labor
that we see in really all construction.
So, we talked to our customers, roll formers,
contractors, wholesalers, the number one thing we hear,
and we've been hearing this for years,
regardless of the pandemic,
well, before the pandemic, is access to skilled labor
people that can do the work, do a good job with the work.
I think the biggest opportunity moving forward really
is people that are willing to get into contracting,
willing to learn the trade, become good at it,
and then be able to successfully manage
a really strong metal fabrication business.
I think there's tons of money in there,
and you don't need to go to school to learn that,
you're really learning,
making money, learning on the fly.
- What other types of factors do we see
that's causing prices to increase, decrease,
have volatility?
- Sure, so, one of the big things that we're seeing
is a lot of pricing pressure on the paint side in our world.
So, our world is really PVDF paint.
There's a couple of different levels of paint.
PVDF being the highest and architectural coating
that we work with on a daily basis.
So, that coating is used heavily in other areas,
and there is a lot of strain on the market
as far as being able to get the PVDF or kind of coating.
Paint prices are going to continue to rise,
and we're not sure how much more,
but we have a feeling that they're gonna be significant
going into 2022.
So, even if we are starting to see the price of steel drop
or aluminum, whatever it might be,
some of the softening that could be,
that you may inherently think is in the market
may be gobbled back up
by the cost of paint going up.
That's something that we're actively keeping an eye on.
First and foremost,
we wanna make sure that we can take care of our customers.
Some of the alternatives
that may start to creep
into the high-end architectural world
is using a lesser of a paint system.
Certainly, we can't really speak definitively that,
hey, here's gonna be a big market shift that,
but that's one of the things that we're keeping an eye on
and trying to make sure that we can provide our customers,
the highest and top-end quality things
and be able to make it at a reasonable price
or not too big of a spread between that
and the substitute type of product.
- And because we can't really say definitively
what the market's gonna do.
There's a lot of questions out there,
and nobody's really sure,
as a business owner,
what are you supposed to do with that information?
How can you prepare yourself and protect yourself
in the best way possible?
- Yeah, it's the same thing as your home finances.
So whether you're a business person, a homeowner,
what value does this spend have?
Can I finance this?
If I do finance this,
how much is the financing going to cost me?
You don't ever wanna put yourself in a position
where you're gambling and saying,
"Hey, it's all or nothing."
You certainly wanna avoid that,
whether you're a business person or a homeowner.
So, if you're saying, "Hey, I need a roof.
I can spend $15,000 for a Comp Shingle Asphalt Roof,
or I can spend $35,000, but I don't have $35,000.
I can't finance it,"
then go spend 15K that you hopefully can afford
that isn't going to put you in trouble.
And the same goes for really any valid business decision.
I think we're coming out of a very, very prosperous,
portion of time.
I would say from a speculation standpoint,
don't overextend yourself,
treat it like, if you're gonna spend it,
you've got the money to spend, if you're saying,
"Oh yeah, well, home prices that are at an all time high,
I can spend this 20K
and it's gonna turn into 40K of value."
I don't know that anybody knows that,
inflation could stay high, but home values could drop.
There's no definitive answer, other than I would say,
I think things are starting to soften
in the whole of the economy.
So it may not be the best time to just go bananas,
particularly if you don't have the money to do so.
- Again, for business owners,
we've seen CapEx equipment prices go up,
whether that's a roll form or a break shear,
a forklift, lead times have increased, prices have gone up.
What's your advice for a business owner
looking into something like that right now.
- So if you think there's demand in your business
to go and invest in your business
so you could grow your business, I'd say, go for it.
There are viable alternatives to going
and spending a $100,000, $200,000 machinery or equipment.
But if it comes into, hey, I gain 15%, 20%,
30% on my products by taking control of manufacturing
and I still have the demand for it,
and I know what I'm doing with this machinery
and this equipment.
If you know that you can make money on it,
that's a good bet on yourself,
good bet on your business to be able to go and do that,
take control of your manufacturing.
You may wanna look at it and say,
hey, I just don't have the demand right now.
I've had two years of phenomenal demand
and a great pace to my business,
and I have a pile of money I would love to spend.
But, if you don't have enough to spend
to carry you through a potential wall,
maybe you should sit back,
and nobody wants to sit on money,
particularly with what inflation is doing right now,
but by truck, by a roll former,
but don't overextend yourself.
I think that's the last thing you wanna do.
In addition, if you are looking to spend money,
there still are a lot of federal programs out there,
section 179, things like that,
that will allow you to have bonus depreciation.
It's always good to look ahead and say,
hey, I'm anticipating,
I've got a backlog for six months for 2022.
I know I'm going to do well this year,
particularly for two-thirds of the year,
it's probably a good opportunity to say,
hey, I'm gonna invest in this equipment now,
I'll probably get it in three to four to five months.
And that way you can have that bonus depreciation
waiting for you for calendar year 2022.
A lot of times we see people calling us in November
and December saying,
"Hey, how quick can I get a roll former?
My accountant said I need to go and spend money,"
particularly, what's gonna add value to your business,
that you can take a big chunk of depreciation
out of your earnings
the year that you bought them equipment.
- Thanks, Adam, really appreciate it.
Make sure you subscribe here to the Metal Roofing Channel
to be kept up to date on all the industry news,
comment down below with questions,
and as always, I'm Thad Barnette,
we'll catch you next time.
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