US wire rod market may cool off after August hike

Wednesday, 23 July 2008 09:34:53 (GMT+3)   |  
       

With domestic wire rod prices in the US now on par with import offers and less pressure coming from raw material costs, the price trend for domestic rod may be starting to stabilize, insiders say.

After the $60 /nt ($66 /mt or $3.00 cwt.) increase from domestic mills that is being instituted for August shipments, domestic wire rod offers are only slightly under the import (Chinese, boron-added) price. In addition, shredded scrap prices are not expected to register a large increase, if any, next month. With rod demand being only lukewarm, and the major price drivers of high import rod and domestic raw material prices neutralizing, it is likely that the domestic rod price trend will neutralize as well, at least for the time being. Therefore, while a decrease in the domestic rod price is not expected, another increase in September is not terribly likely.

On the other hand, there is a wild card that could change the whole game, and its name is China. China is currently the only source of import rod offers for the US, and if the tax loophole for Chinese boron-added rods is closed, either by the the elimination of the VAT rebate or the addition of an export tax, or both, the prices of these offers will rise considerably, giving domestic mills the power to raise their prices as well. For now, however, there is no indication as to if or when these potential tax changes will occur.

Domestic low carbon wire rod prices for August shipment currently range from approximately $56.00 cwt. to $57.00 cwt. ($1,235 /mt to $1,257 /mt or $1,120 /nt to $1,140 /nt) FOB mill, while high carbon rods range from $58.50 cwt. to $59.50 cwt. ($1,290 /mt to $1,312 /mt or $1,170 /nt to $1,190 /nt) FOB mill. Mills are charging an extra of $20 /nt ($22 /mt or $1.00 cwt.) for 5.5 mm (7/32-inch) rods.

On the import side, most Chinese boron-added rod offers continue to range from approximately $56.50 cwt. to $57.50 cwt. ($1,246 /mt to $1,268 /mt or $1,130 /nt to $1,150 /nt) FOB loaded truck in US Gulf ports. Notwithstanding a possible tax change, the pricing trend for these offers has stabilized as well. Chinese mills are not currently raising prices since they are not completely full on the domestic side. Many projects are being put on hold because of the Olympics, which has temporarily decreased demand somewhat. However, China's domestic rod demand is expected to increase again at the end of August once the Olympics are over.

Although the domestic and import price trends are flat for the time being, the US rod market is generally still quite tight since China is the only import source. There is a good amount of Chinese rod arriving in July and August, but it is generally thought that, until another source like Turkey returns to the market in a major way, US rod supplies will remain slim and no price decreases will occur.

In other news, the Chinese government is now checking the boron content of rods being exported at the ports, and traders report that they are having difficulties getting their ships out on time because of this, in some cases having to pay demurrage penalties. SteelOrbis also heard that in some cases the rod is not meeting the minimum boron content specification to qualify as alloy rod, in which case the trader is having to pay the full export tax.


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