In response to a moderate boost in shredded scrap pricing, domestic merchant bar mills increased prices by $1.25 cwt. ($28/mt or $25/nt), despite no corresponding increase in demand.
Early last week, on the heels of a $32/long ton bump in shredded scrap pricing, US merchant bar mills increased transaction prices by $1.25 cwt. ($28/mt or $25/nt). This was quite a change from the previous two months, in which transaction pricing for merchant bar decreased a total of $3.25 cwt. ($72/mt or $65/nt) over the course of two announced price reductions. Currently, domestic merchant bar prices range from $38.30-$43.50 cwt. ($845-$960/mt or $766-$870/nt) ex-mill depending on size, shape and thickness.
The reaction to the increase, which goes into effect with September shipments, has been quiet. Some distributors are filling holes in their inventory ahead of the increase, but their customers are not, still preferring to buy on an as-needed basis until demand for merchant bar substantially improves. For now, the main source of end-use demand continues to be the agricultural equipment sector-even during the upcoming fall/winter season, when overall agriculture activity softens, equipment manufacturers will use the downtime to bulk up their stock for the next spring. And according to the US Department of Agriculture (USDA), domestic farmers will have funds to invest in new equipment; earlier this year, the USDA forecasted an 8 percent increase in farm cash income in 2010.
Another major source of end-use activity for merchant bar-construction-has not been picking up, but there is hope on the horizon. Office and retail vacancies are filling up, which opens up the opportunity for new builds in the near future. Across the US, office vacancies rose in the second quarter of 2010, but in major US cities such as New York, Washington D.C., Philadelphia, Boston and San Francisco, office space vacancies dropped for the first time since 2007. Additionally, the US retail vacancy rate declined slightly in Q2, based mostly on new leases from discount retail stores.
Until the US construction market sails out of the doldrums, US buyers will continue to rely mostly on domestic products. In fact, the number of merchant bar imports into the US seems to be on a slight decline since peaking in May of this year. According to license data from the US Import Monitoring and Analysis System (SIMA), the US only imported 7,524 mt of merchant bar in July, compared to 8,275 mt in June and 10,437 mt in May. As of August 11, the US has only imported 2,059 mt of merchant bar, signifying a declining trend that will likely last through the second half of the year.
The major sources of imported merchant bar to the US in July were Canada, with 4,257 mt; Mexico, with 2,250 mt; and Turkey, with 343 mt. One interesting source in July was Peru, with 255 mt-aside from a moderate showing in January 2010 (470 mt), Peru has not exported any merchant bar to the US in over a year.
As for import offers, rising scrap prices in Turkey bumped up merchant bar prices as well, but as of this week, prices have stabilized. Current offers are now in the range of $38.00-$39.00 cwt. ($838-$860/mt or $760-$780/nt) FOB load truck at US Gulf ports for small sections and some structural channels and angles according to ASTM A36/A6. This represents a $2.00 cwt. ($44/mt or $40/nt) increase from prices a month ago.
