US wire producers under pressure from high costs and soft demand

Thursday, 30 October 2008 14:58:57 (GMT+3)   |  
       

The US wire market is seeing prices fall along with the down-trending rod market and the weak wire demand. The industry is under a lot of pressure, however, as wire drawers are not yet catching a break on rod costs.

Wire drawers and mesh makers say that they are still working off higher priced rod inventories that were booked months ago, and that high priced wire rod is still arriving. Wire companies have lowered prices significantly to account for the weak demand but, still facing expensive raw material costs, their margins are under serious pressure. A wire mesh maker told SteelOrbis this week, "You can't stay in business very long if you are selling at cost or below cost to make product. This market will weed out the weak (too much debt) and only the strong (virtually debt free) will survive."

Price decreases are taking place among North American wire drawers, though they are not issuing any official price announcements as they did in the first eight months of the year when prices were on the rise. Prices are definitely falling, though. One major US wire drawer told SteelOrbis that it has lowered prices equal to the amount that rod prices have decreased, but that some companies have slashed their prices by even more than rod has weakened, just to try to get some business during this time of very weak demand.

"We have seen a dramatic slowdown in business activity throughout our entire supply chain over the past month, with purchasers curtailing their commitments to minimize inventories in anticipation of future pricing reductions," commented H.O. Woltz III, CEO of major North American wire drawer, Insteel, in a press release on the company's fiscal fourth quarter results. "Through the first half of October, shipments have continued to trend below expected levels. In addition to the weakening in demand, we expect spreads and margins to narrow during the first quarter as higher cost material in inventory is reflected in cost of sales."

Insteel reported strong financial results for the fourth quarter and fiscal year ended September 27, 2008, with earnings, net sales and average selling prices significantly increasing in both periods; however, its shipments decreased by 14.2 percent in the fourth quarter from the previous year and by 7.7 percent in the fiscal fourth quarter compared to the previous year. The report also indicated that the company's manufacturing facilities operated on reduced schedules in its fourth quarter in response to the soft demand.

On the wire mesh side of the business, SteelOrbis hears that prices are "all over the board" depending on the geographical region of the country, with prices being driven lower by steep competition among mesh makers and large supplies of inventory. In the Texas market, suppliers of 10 gauge rolls say they are shooting for a range of $85 to $87 per roll, though there are some offers below this level. This compares to a range of $92 to $94 per roll last month.

Going forward, the current sluggish demand conditions are expected to continue for US wire and wire products, with prices continuing to soften in step with wire rod through at least the end of the year. On the bright side for US wire companies, there has not been a major resurgence of low-priced Chinese wire imports despite the bear market, as these products now face an export tax. Downstream wire products, many of which still receive export rebates, remain a concern to domestic wire drawers, however.

Preliminary Census Data from the Steel Import Monitoring and Analysis system (SIMA) show that levels of drawn wire imports to the US have stayed relatively steady in the past year, totaling 47,508 mt in September compared to 53,167 in August and 51,635 mt in September 2007. The largest sources for drawn wire in September were Canada, at 14,766 mt; China, at 11,474 mt; Mexico, at 9,061 mt; Japan, at 2,769 mt; and South Korea, at 2,322 mt.


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