Speakers at SteelOrbis' Second Annual Rebar & Wire Rod Conference tempered short-term optimism with a dose of long-term uncertainty.
While many attendees of SteelOrbis' Second Annual Rebar & Wire Rod Conference came for the mingling as much as the market insight, most were nevertheless eager to hear what David Hodory of the David J. Joseph Company (DJJ), a major US scrap processor, had to say. Scrap pricing and market conditions are foremost in the minds of steel producers, distributors and traders as of late, considering scrap's strong upward momentum and the effect it's had on steel prices.
Hodory, who serves as DJJ's Vice President of Marketing and Communications, explained that while recent gains are a good thing, they're also coming up from an extremely low base. Scrap exports from the US are rising and helping to lift prices, Hodory noted, but domestic supply and demand is still the most influential factor. One interesting point he made was the effect the burgeoning scrap processing industry has on prices. Typically, more producers equates to more competition which leads to lower prices for any given product. But the scrap market is similar to Ebay, said Hodory, in that the more companies bidding for scrap, the higher the prices will rise.
As for the steel industry in general, Hodory predicted that there will still be bumps on the road to recovery--residential construction has not bottomed out, and commercial construction will still face difficulties as well. 2010 might have been automotive's year to shine, but 2011 might not be the "Year of Construction" as many hope.
Bernd Neuenkirchen, VP of wire rod trading for Coutinho & Ferrostaal, agreed with this sentiment, but still offered a glimmer of optimism during his presentation on the state of the wire rod market in the US and abroad. New mills coming online, such as ArcelorMittal's Georgetown mill, are positive steps, and Neuenkirchen even predicted that capacity utilization will rise soon. Demand for wire rod, on the other hand, will not improve in 2011 to the point of full recovery, but there is the potential for meaningful strength.
However, despite any movement in the demand situation, significant price fluctuations in the steel industry remain at the top of the list of concerns for many in the audience. Carlos Amezcua, Internationals Trading Manager for Tata Steel, partially blamed advances in technology for such deep spikes and dips in steel pricing. Before the advent of the Internet and instant communication, international markets were not as entwined as they are now--market developments still had international ramifications, but it would take 4-6 weeks, for example, for European prices to reach the US market, whereas today the effect is nearly instantaneous. On the domestic level, price increases used to be in the range of $5-$10/net ton at a time, but now prices can decline or surge anywhere in the ballpark of $50-plus/nt in one month. Nevertheless, Amezcua does not expect a return to more manageable price fluctuations, even if demand improves in 2011.