Two consecutive price decreases have brought domestic merchant bar prices down $3.25 cwt. ($72/mt or $65/nt) from early-June levels, reflecting a considerable slowdown in demand from end-use sectors.
To say that the "atmosphere of stability" reported in last month's merchant bar analysis has vanished would be an understatement. In mid-June, domestic mills dropped prices by $2.25 cwt. ($50/mt or $45/nt), even though scrap pricing only dropped by $5/long ton (lt). One month later, after a fluctuating scrap market settled at a $40/lt decrease in early July, domestic mills again lowered merchant bar prices, this time by $1.00 cwt. ($22/mt or $20/nt). Currently, domestic merchant bar prices range from $37.05 cwt. to $42.25 cwt. ($817/mt to $931/mt or $741/nt to $845/nt) ex-mill depending on size, shape and thickness.
Such a significant drop in prices in so little time can be attributed to ever-weakening demand, especially in the construction sector. Additionally, the manufacturing sector experienced a slowdown in growth in June, even though, according to the Institute of Supply Management (ISM), "the sector appears to be solidly entrenched in the recovery." Demand from end-product exports has also declined, as the US dollar has climbed 3 percent since mid-April, making exports of merchant bar end-use products from John Deere and Caterpillar more expensive overseas. Merchant bar is a very specialized product, and thus more susceptible to fluctuations in the end-use markets. Until construction improves, and manufacturing registers a strong uptrend, merchant bar pricing is likely to trend downward in the near-term.
Import tonnage of merchant bar arriving to the US also fell in June, and preliminary levels for July look even weaker. According to license data from the US Import Monitoring and Analysis System (SIMA), the US imported 8,437 mt of merchant bar in June, compared to 10,437 mt in May (census data). And with only two weeks left of this month, preliminary import levels for July are only at 1,049 mt. Canada was the only source of merchant bar to export more to the US in June than May, with tonnage levels of 5,178 mt and 4,977 mt respectively. Imports from Mexico dropped month-on-month, from 3,181 mt in May to 2,016 mt in June. And Turkey, which is consistently the third largest source of imported merchant bar, exported 905 mt in June compared to 1,455 mt in May.
As for import prices, offers from Turkey fell by approximately $2.00 cwt. ($40/mt or $44/nt) in late-June, but then came back up by the same amount, leveling out prices from month-ago levels. Therefore, prices for Turkish merchant bar are the same as reported last month, in the range of $35.00 cwt. to $37.00 cwt. ($772/mt to $815/mt or $700/nt to $740/nt) FOB load truck at US Gulf ports for small sections and some structural channels and angles according to ASTM A36/A6. While the initial drop was due to weak demand in the Turkish market, rising scrap prices overseas helped boost the prices back up. However, traders do not expect buyers to react to the recent increase.
