While orders placed for January and February shipments were mostly inventory-related, March orders will more accurately reflect "true" demand in the US wire market.
The flurry of wire rod restocking activity from mid-December to mid-January initially gave domestic mills hope that their $3.75 cwt. ($83/mt or $75/nt) price increase for February shipments would pass through without a hitch. Unfortunately, they encountered more resistance than expected, and actual spot prices by the end of January were well below the $40.00 cwt. ($882/mt or $800/nt) ex-Midwest mill range that mills hoped for. This was not to say, however, that the US wire market was necessarily experiencing a downtrend-it's just that the uptrend wasn't as strong as many predicted.
However, there is a glimmer of hope on the horizon. Many in the steel industry believe that March will hold the answer to whether the recent spike in purchasing activity and price levels are indicative of real, measurable improvement in the industry, or just another bump on the long, winding road to recovery. If order activity stays strong, and if steel prices don't suffer too much from the expected downtrend in February scrap prices, March could very well be the turning point toward real prosperity.
The potential strength in order activity will largely be dependent on demand, specifically in the long-suffering construction sector. According to several sources, commercial construction is expected to lift the sector out of the doldrums, while residential construction still lags slightly behind. While recent data reflect uneasiness in non-residential private construction spending (December spending levels only decreased 0.5 percent from November, compared to a 0.1 percent month-on-month decline the previous month and a 0.7 percent decline the month before that), there is still hope that 2011 will show continuous gains in spending, especially once spring rolls around.
Wire mesh companies, in particular, are hedging their bets for a prosperous year, and rising mesh roll prices have already given them something to be positive about. Prices for 10 gauge mesh rolls in January hovered around the mid-$60/roll range, but February prices have placed them around $71-$72/roll. Because wire mesh prices do not react to scrap trends as quickly as wire rod prices do, mesh producers expect that roll prices will remain in the mid- to low-$70/roll range through the rest of this month.
However, while mesh companies seem to be optimistic about the domestic market, they have backed off on wire rod imports in the last month or so. There is currently only a $1.00 cwt. ($22/mt or $20/nt) spread between domestic and imported wire rod prices, which is not enough to garner much attention from US buyers. Typically, mesh producers import approximately 20 percent of their wire rod, but in the last month, on average, they have only imported around 10-15 percent.