Although US wire rod mills are under pressure to lower prices, insiders indicate that mills are trying to keep their prices steady for as long as possible.
In the first half of the year, the US wire rod market saw a relentless upward rally of prices, as raw material costs were soaring and import offers were scarce and high-priced. Now that the global longs markets have started to weaken and scrap prices have come down, the pricing trend for US wire rod has turned around as well.
Still, while the mills were quick to raise their prices when their costs were going up, they are, understandably, not as anxious to lower prices now that costs have come down. There has yet to be an official price decrease from mills since scrap prices started to trend down; however, it is foreseeable that they will eventually have to come down some and follow the downward global price trend in order to compete with import offers.
For now, domestic prices continue to range from $55.50 cwt. to $56.50 cwt. ($1,224 /mt to $1,226 /mt or $1,110 /nt to $1,130 nt) ex-mill for low carbon and at around $58.00 cwt. to $59.00 cwt. ($1,279 /mt to $1,301 /mt or $1,160 /nt to $1,180 /nt) ex-mill for high carbon. The pricing trend remains slightly down.
One factor working in the producers' favor is the market's continuing domestic supply problems. Several rod mills will undergo temporary shutdowns in September and October, which should help keep supplies on the slim side. With the soft demand and increasing amount of import offers, these outages should not cause too big of a supply disruption, but they will still result in a significant amount of tons being taken out of the market.
While domestic rod offers have remained stable in the last week, traders' import offers for Chinese boron-added rod have decreased, on average, by about $1.50 cwt. ($33 /mt or $30 /nt) in the last week. Most of these offers now range from $52.50 cwt. to $53.50 cwt. ($1,157 /mt to $1,179 /mt or $1,050 /nt to $1,070 /nt) FOB loaded truck, in US Gulf ports. Still, even with the price drop, traders report that sales activity is extremely slow. The pricing trend remains down and Chinese mills are growing increasingly desperate for orders.
In the meantime, the Chinese government's expected tax policy change for alloy (boron-added) rods has still not been officially announced, but traders say that everyone has resigned themselves to it. The removal of the five percent VAT rebate and the possible addition of a 15 percent export tax would result in a significant cost increase for these rods, clashing with the soft market conditions. The Chinese mills may end up eating a large portion of the cost increase rather than splitting it evenly with the buyer, or these import offers might just disappear from the market. However, if only the VAT rebate is removed and the export tax is not added, the cost increase would be a lot more manageable and might not have that great of an impact on the market.
Import rod offers from Turkey are still on the high side, with no sales taking place from the US. Mills are reportedly willing to negotiate on the price, but buyers are not that interested and would prefer to wait and see how much further the market will weaken before they book any new orders. However, with demand from the Turkish mills' main customer, the Middle East, continuing to soften, we may soon see Turkish offers become competitive in the US again.
Preliminary Census Data from the US Import Administration show that the US imported a total of 84,049 mt of wire rod in July 2008, down from 107,118 in June, and down from 138,325 mt in July 2007. The top import sources in July 2008 were Canada, at 31,292 mt; China, at 15,172 mt; Brazil, at 10,797 mt; Japan, at 9,736 mt; and Malaysia, at 6,537 mt.