US merchant bar market – Domestic price hike expected for April

With shredded scrap prices skyrocketing this week, market players strongly believe domestic merchant bar prices will increase again for April shipments. The US scrap market is very tight, and price hikes have been taking place for the past few months. The most recent scrap increase of approximately $70 /long ton has taken some by surprise. Of course, a price adjustment was expected, however $70 /long ton is a huge increase, even larger than the most recent auto bundle sales price increase. With this large of a shredded scrap increase, market players are expecting at least a $40 /nt ($2.00 cwt. or $44 /mt) net rise in merchant bar prices for April. Currently, merchant bar prices range from $31.85 cwt. (e.g. 2 x 2 x ¼ angles) to $39.55 cwt. ($702 /mt to $872 /mt or $637 /nt to $791 /nt), depending on size, shape, and thickness. Even though this is a wide range, most domestic merchant bar prices tend towards the lower end of the spectrum. The most recent domestic merchant bar increase for March shipments has lead to an increase in buying activity. Buyers are now more anxious to replenish their stock before the next price hike occurs. Once April arrives, higher prices will drive demand even stronger. Currently, the merchant bar market is decently strong. The March price increase has helped fuel demand, and the market has been showing signs of improvement on a weekly basis. With the non-residential and industrial construction markets still doing well, demand for structurals, channels, and large angles is very strong right now. Lead times for these products are increasing. Smaller sizes used in housing are a little weaker, but are expected to pick up later in Q2. Also, shortages are occurring in the market for unusual sizes that are not as commonly stocked. On the import side, Chinese mills are now back from the Chinese New Year holiday with merchant bar offers that are up at least $1.50 cwt. since our last report. Asian billet prices have continued to rise, driving merchant bar prices up even more. China seems to be determined to close polluting and energy-wasting steel plants and this is putting more pressure on their billet supply. Also, still pending is the Value Added Tax (VAT) rebate issue. Nothing has been officially announced yet, but rumor has it that the public may hear something more concrete by April 1st. It is all speculation, but at this time, most US traders believe there will be a reduction of some sort in the VAT rebate, leading to significant cost increases for merchant bars from China. Merchant bar offers from China are now in the range of $32.50 cwt. to $34.00 cwt. ($717 /mt to $750 /mt or $650 /nt to $680 /nt) FOB loaded-truck, at Gulf and West Coast ports. Taiwanese offerings have also gone up since our last report. The increase was approximately $1.00 cwt., with prices now ranging from $32.00 cwt. to $33.00 cwt. ($705 /mt to $728 /mt or $640 /nt to $660 /nt) FOB loaded-truck, at Gulf and West Coast ports, though they are more dominant on the West Coast. Turkey has increased merchant bar offerings again, this time by $1.00 cwt. ($22 /mt or $20 /nt) due to the rising costs of billets. Unfortunately, with offers so high and offers from countries like China and Taiwan significantly lower, Turkish offers are not finding acceptance in the current US market, except for strip (thin flat bars) and other small bars. Offerings from Turkey now range from $36.00 cwt. to $37.00 cwt. ($794 /mt to $816 /mt or $720 /nt to $740 /nt) FOB loaded-truck, US Gulf ports. License data from the US Import Administration shows for the first two months of 2007, worldwide small section exports to the US totaled 39,708 metric tons (mt). In both January and February the export leader was Canada with 7,428 mt and 10,713 mt shipped respectively. In January, China came in second with 4,669 mt exported to the US, but fell behind in February only shipping 868.6 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).