Is China poised to re-enter US wire rod market?

The pricing trend in the US wire rod market has shifted to neutral as concerns about continued weak US demand and a deteriorating Chinese market seem to have stalled what little momentum the market had picked up in recent months.

US raw material costs are expected to be slightly up in September, but with US rod producers' $10/nt September price increase having no appreciable impact on spot prices, it seems unlikely that mills will be able to implement another increase, regardless of a rise in scrap prices. Furthermore, with Chinese prices seemingly coming down in a hurry after months of strength, the US market may soon see the return of competitive import offers.

Since last week, US domestic low carbon wire rod offers have generally remained at a range of $28.00 cwt. to $29.00 cwt. ($617 /mt to $639 /mt or $560 /nt to $580 /nt) ex-mill. Despite the weak demand, overall low inventories have prevented prices from slipping. However, large buyers can still reportedly negotiate prices downward by up to $1.00 cwt., depending on region and order size, as mills are still struggling to fill their order books.  

As for imports, Turkish mesh-quality rod offers to the US have also remained unchanged since last week at a range of $26.00 cwt. to $27.00 cwt. ($573 /mt to $595 /mt or $520 /nt to $540 /nt) duty-paid, FOB loaded truck in US Gulf ports. Turkish  mills are still generally unwilling to come down with the price despite their difficulty in getting orders, as they have yet to see any appreciable let-up in raw material costs. By the end of the Ramadan holiday, the Turkish longs mills may be hungrier for orders and thus more willing to lower prices, depending on the state of demand and raw materials at that time. However, the wild card in the equation is China.

China has been largely absent from the US wire rod market for the year so far, as strong domestic demand and low US prices have kept Chinese mills uninterested in the US market. However, US longs traders note that Chinese rod prices have been coming down sharply in the last couple weeks and are quickly approaching the Turkish import rod offer levels. Chinese offers are not competitive yet, but if their declining trend of late continues, then Turkish offers may start to retreat, or Chinese offers could once again become the most aggressive import offers in the US market. For now, Turkish rod offers are stable and not attractive to US buyers at the current price level, and Chinese offers are still priced above the Turkish offers. 

US longs traders report that they have not booked any Chinese rod offers, but they are keeping an eye on the price and waiting for it to drop further, and one trader commented that current offers to the West Coast may be almost workable. SteelOrbis has also heard that Chinese wire rod producers have accumulated massive stockpiles of rod. Most of this rod, however, is not boron-added, which means that it is subject to high export taxes and is therefore not economical to export. Nevertheless, going forward, Chinese mills may grow increasingly hungry for export bookings and have already become more open to negotiating on price.

Though demand has registered only minor improvements in the second half of the year, the US rod market has been kept somewhat tight thus far due to the low supplies in the market resulting from reduced domestic production as well as lack of imports. However, any notable increase in supply could upset this balance, and maintaining low import volumes are key. For this reason, some may find it troubling that import license data show that US wire rod imports rose significantly in August, to 72,377 mt. This figure compares to a preliminary total of 33,075 mt in July, and is second-highest import figure for wire rod this year, after the 78,378 mt imported in January. The August increase is largely due to a big rose in tons from sporadic player Italy, which accounted for 19,437 mt. So, the higher August figure probably does not indicate a lasting rising trend. However, it is definitely something to keep an eye on as even a moderate increase in supplies could threaten the current price stability.

In other supply related news, Nucor Corp. has reportedly obtained the environmental permit needed to reopen its idled rebar and wire rod plant in Kingman, Arizona, which has been closed for six years. The firm acquired the plant from North Star Steel in 2003 following the plant's closure but it has remained idle since then. According to local reports, Nucor does not plan to restart the electric arc furnace at Kingman, though it will re-roll billets from its Nebraska and Washington locations to supply rebar and wire rod the southwestern US markets. Again, some are concerned about the effects that such an increase in US rod supply could have on the market if demand does not start to improve soon.