The US merchant bar market has been showing signs for several weeks that it is getting closer to the bottom, as overall production cuts have resulted in alarmingly low utilization rates. Moreover shredded scrap prices have begun to increase.
As a matter of fact, the raw materials component of the effective domestic merchant bar price will go up by $107 /nt. Does that mean that the net price will go up as well? Because of the pitiful demand for merchant bars, we think, probably not.
Still, SteelOrbis has heard from several buyers that the mill sales people are testing the waters for a possible increase. Mills do not actually believe an increase can stick; however, an announced increase may signify a bottoming out of the market. Many buyers are on the fence, delaying their purchases, thinking the prices will fall further. The mills may achieve a change of the market mindset, if not a change of effective prices by announcing a small price increase. Pricing announcements from US longs producers are expected at the end of this week.
Currently the raw materials surcharge (RMS) is at zero, after scrap prices fell below the program baseline Nucor uses to calculate its RMS ($162 /nt). With the new scrap price increase, the RMS will be in the positive territory again. Reestablishing the RMS could be a stepping stone for merchant bar price increases heading into next month. As one trader told SteelOrbis, “The RMS needs to go up first before anything happens with (merchant bar) price increases.”
Domestic merchant bar prices have remained the same since our last report two weeks ago and are still in the range of $41.55 cwt. to $49.25 cwt. ($916 /mt to $1,086 /mt or $831 /nt to $985 /nt) ex-mill depending on size, shape, thickness. Transactions below these levels are executed as well, based on the volume and customer.
Mills have also been cutting production to avoid further price decay. According to latest production figures US mills produced only 1,182 nt of raw steel during the week of December, 1, which equates to a utilization rate of about 49.5 percent. Once demand begins to pick up, mills will have to increase their production and inventory levels, and therefore, most mills will need to increase their scrap purchases.
On the import side, Mexico’s offerings are mostly within the same range as they were two weeks ago, at about $36.00 cwt. to $37.00 cwt. ($794 /mt to $816 /mt or $720 /nt to $740 /nt) delivered to California and Texas; however, there are now fewer, but more aggressive offers from Mexico at around $34.00 cwt. ($740 /mt or $680 /nt).
On the West Coast, South Korea has also been offering for January shipments at around $34.00 cwt. ($740 /mt or $680 /nt) duty-paid, FOB loaded truck in West Coast ports.
In general, most import merchant bar offers have received little interest. The situation remains such that while import merchant bar offerings are priced significantly lower than domestic, buyers believe there is just too much risk, given the long lead times and economic uncertainty associated with booking large import orders.
License Data from the US Steel Import Monitoring and Analysis System (SIMA) show that merchant bar import arrivals have continued their steady decline since the second half of 2008. In June 2008, worldwide import tonnage to the US for merchant bar products totaled 15,978 mt. Since then, monthly merchant bar import totals have slid every month, demonstrating the following monthly totals: July - 14,973 mt; August - 11,293 mt; September - 9,647 mt; October - 8,693 mt; and November - 6,796 mt. The data is for light sections of carbon and alloy steel, U, I, L, T and H shapes of 3" or smaller (does not include rounds, squares, or flats).