With both US and foreign mills raising their wire rod offering prices, spot prices for both domestic and import wire rod have registered increases since last week.
On the domestic side of the market, following the $60 /nt ($66 /mt or $3.00 cwt.) increase for August shipments by domestic rod mills (both ArcelorMittal and Keystone have officially announced such an increase so far), spot prices for domestic rods have increased by approximately $2.00 cwt. ($44 /mt or $40 /nt) in the last week.
Most domestic offers for low carbon wire rods now 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, as this size is in high demand due to the restricted import availability, and the production of this sized rod decreases mills' productivity.
The pricing trend for domestic rod is still headed upward, as the remaining $1.00 cwt. of the official price increase should eventually be absorbed by the market. US rod customers can ill-afford the August price hike, but they have no cheaper import alternative, and thus the US mills still hold the pricing power. At SteelOrbis' Steel Trade Conference over the weekend, President of Coutinho & Ferrostaal Ltd Canada, Henry Pankratz, cited the lack of imports as the main reason why he believes that the wire rod and rebar markets will "remain strong and in tight supply for the foreseeable future in North America" (though he does expect to see an increase of Chinese import rod arrivals to North America over the next couple of months).
On the import side of the US rod market, the only credible source remains China. Due to a recent price increase from Chinese mills, offering prices for Chinese boron-added rods have increased by approximately $1.00 cwt. in the past week. Most offers for the US of boron-added rods from China now range from $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.
It is worth noting that the US rod price is slowly but surely catching up with the Chinese rod price. With no end in sight to the domestic price hikes, does this mean that Chinese rod offers will soon be more competitive than domestic? Well, not so fast. Although Chinese boron-added rods are the least expensive rod imports available, the Chinese government is expected to close the tax loophole for this product soon, which would increase the cost significantly.
There has yet to be an official announcement regarding any tax changes for boron-added rods from the Chinese government, but it seems that most market insiders believe that it will take place imminently. As one rod trader told SteelOrbis this week regarding the tax change, "We all know it's coming; we just don't know when."
It is also not clear whether only the five percent VAT rebate will be revoked, or if a 15 percent export tax will be instituted for these rods as well. The worst case scenario is that both actions will be taken, resulting in a 20 percent increase in the price, which would equal an increase of roughly $200 /nt in the FOB Stowed price. This additional cost would be split by the exporting mills and the trader who is purchasing the rods, ultimately resulting in a price hike of $100 /nt for US customers. It would be hard for traders to pass along this significant increase to their customers, and it would be equally difficult for Chinese mills to continue exporting these rods competitively with this additional tax burden. Therefore, we may see these Chinese rod imports disappear from the market as quickly as they appeared.