Steel supercycle officially over, slow recovery ahead
One of the country’s largest listed steel distributors says the commodity supercycle is officially over, with declining volumes unlikely to recover this year.
“We think 2023 is probably the bottom of the market,” Steel & Tube chief executive Mark Malpass told Markets with Madison.
“We see that continuing until at least past the election. We’re not expecting a speedy recovery.”
At its roofing product factory in Auckland, Malpass explained how the company was unwinding inventory and cleaning up costs to prepare for potential further softening - stock on hand was reduced by 27.7 per cent, down to 3.5 months’ worth, and bank debt was cut to zero.
“During a recession, the two things that matter are your balance sheet and your cost structure,” he said.
Steel and Tube’s volumes fell by 12 per cent in the year ended June - Forsyth Barr analysts warned that could worsen by another 5 to 8 per cent.
Competitor Vulcan Steel’s volumes were expected to be down by 13 per cent when it reports its result next Tuesday.
Fletcher Building’s building products division, which included eight steel brands, did not disclose volumes but its earnings for metals grew by 6.7 per cent in the year.
The steel distribution market in New Zealand is tightly guarded, with details of market share and pricing power difficult for investors to find and understand - all the more reason for this episode of Markets with Madison above to delve into it.
Markets with Madison understands Steel & Tube and Fletcher loosely equally hold about 18 to 19 per cent of the market - according to research done for merger and acquisition talks in 2017 and 2020.
They made $51.9 million and $63m in earnings respectively in the 2023 financial year, while Vulcan’s earnings were expected to be between $215m - $219m.
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Madison Reidy is the host of New Zealand’s only financial markets show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.