While spot prices for US domestic wire rod are stable this week, there is growing concern that current price levels are not supportable by demand.
Allegations last week of a wire rod supply shortage in the US domestic market led to speculation that prices could rise in the near term, but those expectations have been replaced with concerns over actual end-use demand, which sources tell SteelOrbis is not high enough to balance out supply and support current wire rod price levels. Additionally, with early predictions of shredded scrap pricing moving sideways again in April, confidence that spot prices will firm up is waning, and it seems less and less likely that mills will close the $2.00 cwt. ($44/mt or $40/nt) gap between spots and official asking prices. For now, spot prices remain in the range of $37.50-$38.50 cwt. ($827-$849/mt or $750-$770/nt) ex-Midwest mill, but end-use activity might make an impression on mill pricing policies next month.
In terms of construction demand, the near-term picture isn't pretty. According to the US Commerce Department, residential home construction dropped in February, along with building permits, which, at a seasonally-adjusted annual rate of 517,000, represented the lowest level since the government started tracking the statistics in 1960. Much of the decline in new builds has been attributed to competition from existing homes; and with average home prices in the US at the lowest level in nine years (thanks to a glut of foreclosures), the trend is unlikely to improve soon. As for nonresidential construction, the American Institute of Architects (AIA) predicts that "a robust recovery is months away." The AIA's Architecture Billings Index, which is an indicator of construction spending 9-12 months in the future, rose a meager 0.6 points in February, suggesting that "an anticipated recovery in US nonresidential construction may not pick up speed before 2012."
If demand for wire rod in the US depresses, it will likely further lower import levels of wire rod in the US; when buyers only purchase wire rod on as "as needed" basis--instead of stockpiling--they only turn to imports if the margin between import and domestic prices is especially attractive. Currently, wire rod offers from Turkey are in the range of $36.75-$37.75 cwt. ($810-$832/mt or $735-$755/nt) duty paid FOB loaded truck in US Gulf ports, which is only $0.75 cwt. ($17/mt or $15/nt) less than domestic spot prices. SteelOrbis has heard, however, that a few more aggressive mills are willing to drop offers by around $0.25 cwt. ($6/mt or $5/nt) in order to book tonnage. But so far, there is no indication from US buyers that the discount is enough.
