US wire producers face weak market and re-emergence of Chinese imports

Friday, 12 September 2008 11:01:59 (GMT+3)   |  
       

Although the US rod and wire markets have definitely lost their luster, domestic rod mills have not lowered their prices and, therefore, US wire and mesh makers are generally not offering any price cuts either.

US scrap prices have taken a big tumble in the last couple of months, and steel demand has weakened worldwide across almost all product lines, resulting in more cheap import offers of many products for the US, including wire rod. However, domestic wire rod mills have not lowered their numbers to reflect the drop in raw material costs or the increasing competitiveness of imports. As a result, wire companies have yet to lower their prices despite the soft market conditions.

Wire drawers say that they are having a hard time explaining to customers that they can't lower their prices, since the customers are aware of the weak market and the drop in scrap prices. At the same time, the wire companies have not yet seen a major decrease in their raw material costs. Domestic rod prices have yet to come down and, while plenty of cheap import rod offers are available now, the rods in the wire drawers' inventories were purchased at a much higher price than the current import spot price.

However, though most wire buyers aren't seeing lower prices just yet in the spot market, this is not the case for some contract customers. Contract customers are usually suppliers for the automotive industry, consumers of higher-end wire products such as plating and cold heading quality. Some wire rod mills have a surcharge for contract customers that is tied to scrap prices. One rod producer told SteelOrbis that their contract customers will see the full benefit of the busheling scrap price drop this month, which is about $270/nt. In previous months, however, contract customers have been paying bigger increases than those seen for average spot prices from the rod mills. 

Despite the lack of published price decreases, the pricing trend for US wire is currently trending down. Though rod mills have yet to lower their numbers, it is expected that they will have to, at the very least, cut some private deals once they re-enter the market in the fourth quarter. Also, though there is very little import buying taking place right now, wire drawers will eventually have to replenish their stocks, and the cheaper import rods will start to enter the US market.

In addition, with the weakening of their domestic market, China is offering wire competitively to the US market again -- even with the significant export tax -- so US wire drawers may have to lower their numbers just not to lose market share to imports, something they haven't had to worry about since Chinese wire was hit with an export tax last year. Fabricated wire product imports from China, which had remained a problem for US wire companies even when the market was strong (many receive a VAT rebate, though some are now subject to antidumping duties), will also remain a concern for the domestic industry now that cheap Chinese exports are ramping up again.

On the wire mesh side of the business, activity is also very slow, and producers are having a harder time keeping prices stable than on the bright basic wire side. There are a lot of players in the mesh market, and producers say that they are having a tough time keeping prices steady. In the Texas market, the last increase that mesh makers tried to push through was generally not accepted, and most offers for 10 gauge rolls of building mesh are currently at $92 to $94 per roll.

All in all, despite the current market weakness, the US wire market has seen a very good year, with high volumes and strong profits. Prices rose tremendously this year and are still lingering at record highs. China has also lost most of their market share due to the Chinese government's export restrictions and subsidy cutbacks, as well as the successful antidumping and countervailing duty cases filed by US producers against many downstream Chinese wire products. Going forward, if the current rough patch continues, US wire drawers' brief period of smooth sailing may be over for a while. However, at this point, many market watchers are hopeful that both scrap prices and Chinese steel prices will bottom out in the fourth quarter, and that 2009 could be another record year for the US wire market.

In legislative news affecting wire products, the US ITC determined Thursday, September 11 that the US industry has been materially injured by imports of steel wire garment hangers from China. As a result of the Commission's affirmative determination, the US DOC will issue an antidumping order on these imports.


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