In the context of limited domestic rod availability in the US market combined with the lack of import options and high import prices, domestic mills are expected to take advantage of the tight rod situation and announce a price increase for August shipments within the coming week.
An increase of $40 /nt to $60 /nt ($44 /mt to $66 /mt or $2.00 cwt. to $3.00 cwt.) from July prices is anticipated from US rod mills, which should bring their prices closer to the international levels. Since domestic production is not large enough to meet domestic demand, and since the available import offers are significantly higher priced than the domestic material, US rod mills are in a strong position to raise their prices.
In addition to the tight supply situation taking place, shredded scrap prices are also expected to register an increase in the first few days of July, which should give domestic mills a decent justification to underline their August price increase.
For July shipments, domestic prices continue to range from $54.00 cwt. to $55.00 cwt. ($1,191 /mt to $1,213 /mt or $1,080 /nt to $1,100 /nt) ex-mill for low carbon rods, while high carbon offers range from $56.50 cwt. to $57.50 cwt. ($1,246 /mt to $1,268 /mt or $1,130 /nt to $1,150 /nt) ex-mill.
Making supply problems worse, Gerdau Ameristeel's Beaumont, Texas facility had an accident in mid-June involving steel spilling out of a furnace and, as a consequence, the mill was shut down for two weeks and had to curtail shipments to some accounts. The mill is now back in operation, but sources say that because this was the mill's second production problem in eight weeks, the mill has really fallen behind and has not fulfilled all orders to the full extent. Although this is not a big crisis, it has certainly added to domestic rod supply problems since most customers will get less tons.
On the import side, no change in pricing has been observed since last week, though the pricing trend for import rods is strongly up. Another price increase from Chinese mills of approximately $20 /nt to $30 /nt ($22 /mt to $33 /mt or $1.00 cwt. to $1.50 cwt.) is imminent. China is still the only source offering competitively, with offers for boron-added rods currently ranging from $55.50 cwt. to $56.50 cwt. ($1,224 /mt to $1,246 /mt or $1,110 /nt to $1,130 /nt) FOB loaded truck in US Gulf ports, not including the potential tax increase that the Chinese government may impose on boron-added rods, which the traders would have to split with the supplying mill. There are some offers for non-alloy rods from certain Chinese mills, although they are significantly more expensive than the above range.
As for the potential addition of an export tax on boron-added rods from the Chinese government, most US buyers are taking the chance and just hoping that this does not happen anytime soon. Some traders, however, are not ordering any new shipments until the policy decision is made in order to deflect the tax risk.
Regarding the quality of boron-added rods, some wire drawers say that it is too soft to meet their drawing requirements and are therefore not purchasing it. Others, however, say that the minimal amount of boron does not affect the quality of the steel significantly. Time will ultimately tell if there are widespread problems with the boron-added rods when they start to arrive en masse in July and August.
Recently released Preliminary Census Data from the US Import Administration show that wire rod imports decreased significantly in May from both the previous month and from the same month of the previous year. Wire rod imports totaled 65,643 mt in May 2008, compared to 145,798 mt in April, and compared to 193,184 mt in May 2007. In May 2008, the US' top import wire rod sources were Canada, at 36,756 mt; Germany, at 10,074 mt; Japan, at 7,529 mt; China, at 5,481 mt; and Brazil, at 4,668 mt.