Q2 commentary from Reliance Steel & Aluminum centers on aluminum-driven LIFO costs and a resilient steel pricing environment. Management notes aluminum’s outsized impact on LIFO and confirms steady buyer acceptance of prices, while raising the full-year LIFO outlook to $300 million.
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Okay. Thanks for that. And then on the LIFO expense came in a bit bigger than I think you alluded to that aluminum was proportionately a bigger driver there. But you know, when you are pushing through price hikes last quarter on the steel side, that seemed to be supportive of margin expansion. So I guess I am wondering what was the breakout on the LIFO aluminum versus carbon this past quarter? And are you seeing any steel buyers less willing to accept price hikes at these levels? I guess, given expectation pricing may be peaking somewhat soon?
Management explained that, based on its annual estimate, aluminum is ~17% of sales but contributes about a third of the annual LIFO estimate. 1
Using that annual framing, they indicated of roughly ~$300 million of annual LIFO expense, about ~$100 million is aluminum-related (with the remainder attributable to other metals such as carbon, i.e., “carbon side”). 1
For the quarter, management stated that second-quarter LIFO expense was $112.5 million, which they said was significantly above their estimate of $37.5 million. 2
They also said the full-year LIFO expense outlook increased to $300 million from $150 million due to higher than anticipated carbon and aluminum product costs, and that a “notable driver” of the LIFO expense increase was aluminum, which disproportionately affected LIFO gross profit margin relative to historical levels. 2
They described the aluminum drivers as including higher aluminum pricing resulting from Section 32 tariffs “without a corresponding increase in demand” and that this differs from the carbon-side dynamics. 2
They further characterized aluminum pricing as having nearly doubled from pre-tariff levels, and noted that there are not the same supply/demand dynamics as on the carbon side. 1
While management gives an annual estimate split (e.g., ~$100M aluminum out of ~$300M annual LIFO), the excerpt does not quantify the exact Q2 LIFO amount attributable to aluminum versus carbon. 12
So the most defensible “breakout” from the filings is:
In response to “any evidence of pushback from buyers at these levels,” management indicated customers can still buy product and resell to end markets and that customers are “okay right now.” 3
They added that the company is not seeing a broad issue driven by unwillingness to accept current pricing; instead, they cited competitive dynamics: competitors facing higher interest rates and higher inventory-carrying costs have “holes in inventories.” 4
They said their own inventory position is “pretty robust,” creating opportunity to capture more market share and assist customers who have trouble getting steel into the marketplace. 4
The excerpt does not confirm that steel buyers are delaying purchases because “expectation pricing may be peaking.” 3
Instead, management’s qualitative takeaway is that acceptance remains intact (“okay right now”), at least at the time of the call. 3
They also referenced that when markets are tight, demand/supply tightness results in them receiving preferential supply access (described as “allocation” in effect), which is consistent with continued demand absorption rather than refusal of higher prices. 5
If you want a numerical Q2 aluminum-vs-carbon LIFO split (dollars), that requires disclosures beyond what’s included in the excerpt you provided. 2
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