Contrary to expectations, the Chinese export tax on wire rods did not push up the average sales price for either imports or for US domestic rods.
While Chinese mills have raised their asking prices since the export tax was announced, expecting US customers to pay for half of the additional costs, there were little to no takers at these higher prices since wire rod demand in the US has not been strong enough to warrant a price increase.
China's domestic wire rod prices have been trending down because the mills have been unable to sell much tonnage to the US or to any other export markets since the export tax was imposed. The soft Chinese domestic prices are offsetting the price increase from the export tax somewhat, which we may result in a price correction to China's export rod offers to the US. Some Chinese mills have already lowered their asking prices for traders, and some unsold tons are selling at amounts less than future offers. When demand eventually improves, US customers will be willing to pay higher prices, though currently it is unlikely that the US market will be ready to help with the 10 percent Chinese export tax, equal to around $50 /nt, any time soon.
For now, the pricing trend for import wire rods is neutral, due to the slow US demand that is not anticipated to improve in the coming weeks. Most mesh grade wire rod import offers on the market are at the same pricing level as last week, continuing to range from $28.25 cwt. to $29.25 cwt. ($623 /mt to $645 /mt or $565 /nt to $585 /nt) FOB, loaded truck, in US Gulf ports, while import offers for drawing quality rods still range from $30.00 cwt. to $31.00 cwt. ($661 /mt to $683 /mt or $600 /nt to $620 /nt) FOB, loaded truck, in US Gulf ports.
As for US domestic wire rod prices, offers have also remained at the same level as last week, with domestic low carbon wire rod offers on the market continuing to range from $29.00 cwt. to $30.00 cwt. ($640 /mt to $661 /mt or $580 /nt to $600 /nt) FOB mill. High carbon offers still range from $31.50 cwt. to $32.50 cwt. ($694 /mt to $717 /mt or $630 /nt to $650 /nt) FOB mill. However, some mesh makers are reportedly getting special deals lower than this range due to the continuing weak business.
The August price increase that domestic mills were considering now seems unlikely, as they are currently struggling just to keep prices stable. Despite the lack of imports, both mesh and industrial quality wire rod sales are weak because of soft demand from both the construction sector and the wire drawing sector. However, as we mentioned last week, there are rumors that the export tax will go up by another five percent, perhaps as early as October 1. If this happens, imports will be even more constricted, possibly allowing domestic prices to rise. For now, the pricing trend for domestic rod remains neutral.
Data from the US Import Administration show that wire rod imports in May totaled 174,400 mt. Year to date through May, wire rod imports to the US have totaled 666,800 mt, a little over half of the total wire rod imports during the same period of 2006 - 1,169,600 mt. In May, China was the largest exporter of wire rod to the US, with 69,082 mt, followed by Canada at 30,366 mt, and Trinidad & Tobago at 16,182 mt. Even though the pricing gap between Chinese and Turkish rods is closing, Turkish offers are very seldom in the market.