Mark Hennings of Harris Supply Solutions discussed the short-term rebar market with SteelOrbis during our 2nd Annual Rebar & Wire Rod Conference in Las Vegas.
What are your thoughts on the rising price trend for rebar? Do you think it's sustainable?
Pricing is inversely related to supply, and directly related to demand, so what we have now is a tightening of supply, where prices rise, and once supply corrects itself, prices will reflect the change in supply. In order to sustain price you need demand, and demand isn't there right now.
Speaking of demand, I hear different things from different regions-the East Coast and Southeast, for example, are seeing stronger demand than in the Midwest.
Since demand is dependent on housing and commercial construction, I would expect areas that can generate job growth and economic expansion will experience better demand. The Mid-Atlantic, Southeast and Texas will do better than the other regions. I think the latest census data and other economic reports support this theory.
As for as inventory goes, how are you managing your inventory? Did you let them run down near the end of 2010?
No, initially we envisioned the change in scrap and steel availability and positioned ourselves accordingly. Scrap has gone up during the November-February timeframe for the last three years; however, the past isn't a prediction of the future, especially in our current economic environment. Our goal during a stable pricing environment is, to turn inventory at nine times which allows us to be on market regardless of the situation; we'll adjust it lower for rising market prices.
We hear that commercial construction is slated to do better this year than residential, in contrast to the presentations which showed that residential and commercial rise and fall virtually hand-in-hand.
Light commercial is closely related to housing, and I don't expect new residential construction to be any better than 2010 and larger commercial work that is infrastructure is tied to federal and state funding. Most states are having budget crises right now and therefore cutting spending, so commercial construction isn't going to be driven by the government, but private sector, and the private sector continues to have difficulty obtaining credit for commercial markets.
What other concerns do you have for the rebar market this year?
My primary concern is the speculation that exists on the international level with imports into the US. The rising market and time lag make imports attractive initially, but as positions are purchased and supply corrects, positions arrive unsold and disrupt the market. The speculative excess brings in more steel than the market demands, and has a detrimental effect on pricing. There is enough capacity in the US to meet the current demand of the market.