Dear Valued Customers and Partners,

The first quarter of 2023 was characterized by terrible weather and gloomy economic predictions.  I hope that all of you avoided damage from the flooding across much of California, and that business has not been held up too much by the floods or market uncertainty.  At Cal-Sierra, we found it challenging to deliver because of delays on jobsites and muddy conditions.  The good news is that the sun is shining, the ground is drying, and we should have a lot of pent-up demand about to break loose in April.

Q1 2023 Recap

The first quarter of 2023 was much slower than the first quarter of 2022.  The main factor was the persistent rainstorms, but it was made worse by a continued slide in steel prices.  Distributors continued to operate in inventory-reduction mode and there was plenty of cheap material available.  Cheap inventory will continue to arrive into April, however,  I predict a gentle rebound in cost that will hold across all categories for four months or more.

2023 Market Outlook

Cal-Sierra’s cost on inbound import inventory orders booked through July will be, on average, 2% higher each month.  I believe our competitors will have the same cost trend, which means that as current inventories sell through, if demand holds, market prices will rise.

• Port congestion is mostly gone – Cal-Sierra Pipe has not experienced any meaningful delays in vessel landings since the beginning of the year. There is no backlog and vessels are being unloaded on normal timelines.  Major retailers are reducing their inventories and port volumes are down significantly versus last year, as supply chains have returned to normal for most industries.  Lower forecasts across many imported products will keep import volumes down.  That does not mean that the ports are functioning well.  A recent article in the Wall Street Journal reported that labor talks at the ports are intensifying and port workers have stopped staggering their breaks, which means that operations cease during the scheduled lunch hour each day.  We have noticed more incorrect shipments and more lost material in Q1 than ever before.  This is unlikely to effect our customers, but it is an annoyance to distributors.
• Interest rates continued to rise – Cash flow seems to be a problem across the entire industry, from homeowners and contractors to distributors, and all the way up to traders and mills. With a higher cost of money and work delays due to bad weather, paying on time becomes more important and more difficult.  With a delayed season as a result of poor weather, paying on time becomes more difficult.  I expect this to be a challenge for all of us this year.
• Domestic mills raised prices – Citing raw materials costs, domestic mills across all product categories announced price increases in Q1 and further increases are predicted for Q2. For now, we have seen increases of 5%-10% so far.  Coil prices are the main driver for the domestic increases.  Coils are up for import material as well, but, to-date those mills have not pushed increases due to soft demand.
• Economic mixed signals – While the stock market seems to be resilient, and the job market holds strong, rising interest rates will force delays in some construction projects. Lower tax refunds at the consumer level are likely to depress business for our customers in the retail segment.

Recommendations

These market conditions paint a fuzzy picture for the rest of 2023 and it will be difficult to forecast inventory needs.  With uncertainty about costs and volumes going forward, I advise that you make use of your distributor partners.  Buy only what you need and keep your inventories lean.  We are well positioned to cover our entire mix of stock items, with strong quantities arriving each month.  You may see some scarcity in late summer if demand holds strong, but that is not likely.  You should be able to get anything you need, and cost increases will be moderate from month to month.

I hope you find this information helpful.  I’m looking forward to sunny days and no more flooding.

 

Sincerely,

John Peery

President

Cal-Sierra Pipe, LLC

209-466-0988

jpeery@calsierrapipe.com