The pricing trend for import wire rod offers in the US is now strongly up, in view of the Chinese government's new export tax for wire rod.
According to an announcement along with a list of the steel products that will be taxed issued by the Chinese government Monday, the new export tariff system, effective as of June 1, will add a 10 percent export tax to all Chinese wire rod exports. Previously, the only steel product exports that were taxed were semi finished products; however, pressure from the US government to control the amount of low-priced steel imports coming into the US has resulted in the Chinese government's decision to tax a number of steel exports, including wire rod.
At current offering prices, the ten percent tax would mean an additional cost of approximately $45 per net ton ($2.25 cwt. or $50 /mt). It remains to be seen how much Chinese export prices will actually rise, since some of the cost increase may be absorbed by the mills. US demand for wire rod is still not strong, so the Chinese mills might not be able to attain the full $45 /nt increase. Still, this would be a significant cost increase, and in order to maintain their profit margins, they will have no choice but to raise prices to some degree. Therefore, the pricing trend for import wire rod is now strongly up.
For now, most import offers on the market for mesh grade wire rod continue to range from $27.75 cwt. to $28.75 cwt. ($612 /mt to $634 /mt or $555 /nt to $575 /nt) FOB, loaded truck, in US Gulf ports. Drawing quality offers now range from $29.50 cwt. to $30.50 cwt. ($650 /mt to $672 /mt or $590 /nt to $610 /nt) FOB, loaded truck, in US Gulf ports.
Along with wire rods, Chinese origin wire products will be subject to export tax as well, but only at 5 percent. The difference between wire rod and wire export tax rates may encourage wire exports to the US even further.
The news of the Chinese export tax has also affected the domestic wire rod pricing trend, pushing it from neutral to slightly up, as the installment of the export tax could potentially signify price increases for import rods or reduced shipments to the US. However, the US scrap market still hasn't bounced back, and US wire rod mills will have a tough time explaining price increases to their customers.
Being the largest source of imported wire rods, China factors into the domestic price equation as well (statistics show that China shipped 1,226,960 mt of wire rod to the US in 2006, and 222,000 mt of wire rod to the US from January through April 2007) It is not yet known to what extent the US market will be affected by the export tax, but more will be revealed in the coming weeks as Chinese wire rod mills decide how to react. China has been dominating the low carbon wire rod market almost single-handedly, and the new export tax may put previous suppliers to the US import market back in to play. If the full export tax increase may be forced on US buyers, Turkey and Germany may find their way back to the US market.
For now, most domestic low carbon wire rod offers on the market continue 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.