Despite shrinking supplies, several factors undermining US wire rod rebound

As US shredded scrap prices have retreated from their early May gains and US wire rod demand has yet to improve, it now seems unlikely that American rod producers will be able to push up their June prices as they'd hoped.

It is difficult to judge the ex-US mill rod price at present as US rod producers have yet to get any significant orders in the last several weeks. However, it is expected that the $35/nt ($39 /mt or $1.75 cwt.) June price hike announced last month will not go anywhere since scrap prices have retreated by about $10/long ton since the increase was announced and are expected to post another slight drop in June. Furhtermore, import offers are now trending down again, taking the wind out of US longs producers sails.

Currently the only advantage that US rod mills have is the low levels of supply in the market, and the eventuality that customers will at some point need to start purchasing again to replenish their inventories. However, in addition to scrap's loss of momentum and the declining trend of Turkish import prices, another factor working against domestic mills is inventory sales, among both wire companies and traders. In recent weeks, several traders in Houston have unloaded inventories, and rod consumers who were nearing the end of their own inventories were able to replenish them at bargain prices that were several dollars per hundredweight below the domestic mill asking price.

The domestic asking price for low carbon rod hasn't moved from $24.00 cwt. to $25.00 cwt. ($529 /mt to $551 /mt or $480 /nt to $500 /nt) ex-mill range reported last week,  though, again, there are very few transactions transpiring. The price trend for US rod has shifted to neutral, however, as the dimmed outlook for scrap will likely prevent US mills from achieving their June price hike. The mills generally remain positive, though, in their view that the market has bottomed and that their massive output cuts will do their part in continuing to tighten up supplies. Even more output cuts are ahead, as ArcelorMittal is preparing for an extended shutdown of its Georgetown, South Carolina rod production facility, which will start on July 12.

As for rod imports to the US, Turkey remains virtually the only low carbon source. Traders say that there has been some new purchases in recent weeks at the $23.50 cwt. to $24.50 cwt. ($518 /mt to $540 /mt or $470 /nt to $490 /nt) duty-paid, FOB loaded truck in US Gulf ports  level, though they are aiming to book new deals at cheaper prices and expect that the Turkish mills will be willing to negotiate. In general, there are very few import quotes out there for the US rod buyer as most traders are not in the market. On the bright side, traders report that while there are not necessarily any more transactions, they have seen an up-tick in inquiries in recent weeks.

Preliminary license data from the US DOC show that in May, US rod imports hit their lowest level this year, totaling only 19,853 mt. Though this number may be revised slightly upward in the census data, it will likely remain well under the April census total of 27,365 mt and significantly under the year-ago May total of 66,256 mt. The majority of the May 2009 wire rod imports came from Canada, which accounted for 10,396  mt. Other main sources in May were Japan, at 6,464 mt, followed by Brazil, at 1,758 mt, and Spain, at 323.6 mt. SteelOrbis notes, however, that the main wire import sources last month are known more for high carbon, rather than low carbon wire rod. Major low carbon producers, like Turkey and China, did not export any significant low carbon rod volumes to the US in May.