Although the US wire market is clinging to stable end-use sectors in order to stay afloat, weak demand keeps chipping away at any meaningful recovery.
Wire mesh companies in particular are feeling the brunt of current conditions, especially from the indecisive construction industry. While some recent months have boasted increased activity and spending, others have reflected the opposite, leading to an unstable end-use market for mesh. For example, US construction spending registered a month-on-month increase of 0.4 percent in August, after falling 1 percent in July. As for housing starts, data from September has already been reported at 0.3 percent above August rates, a paltry improvement compared to August's 10.5 percent rise over July. Such instability has caused mesh buyers to hold off on purchasing until absolutely necessary, which has consequently affected mesh producers' inventories. Some producers still have inventory from late September/early October, when wire rod prices were higher than they are now. Although the wire rod price increase announced for October shipments ($1.50 cwt. or $30/nt) did not exactly stick, mesh companies are reluctant to reflect this month's scrap pricing decrease (down $30/long ton) in current orders. However, an attempt to keep prices higher will not likely be accepted, therefore current 10 gauge roll prices of approximately $56-$58/roll (about $1.00/roll more than prices reported last month) will probably soften in the near term.
The outlook for drawn wire is not any better. While many drawers are relieved that wire rod prices did not increase this month, they have not exactly boosted their inventory levels to take advantage of last week's drop of about $1.00 cwt. ($20/nt) for wire rod ex-mill. Similarly, their own customers have not been flocking to their order books after the latest scrap announcement, inquiring about lower prices. Overall, wire drawers-especially those linked to the construction industry-are in "survival mode", making whatever internal changes necessary to stay in business while leaning on the relatively steady demand of end-use sectors such as agricultural equipment. However, according to economic indicators, the agricultural equipment industry is poised for a strong uptrend in the near future. The US Department of Agriculture (USDA) recently reported that in the first eight months of 2010, US agricultural exports increased by 14 percent, and according to financial analysts at JPMorgan Chase, sales of farm equipment should spike from grower's cash receipts, which are expected to increase by 24 percent for the 2010-11 crop season.
Another bright spot in the current wire market is domestic producers' lead time advantage over import sources. Many wire drawers have indicated an increasing reliance on US wire rod, despite the bumps and dips in domestic pricing, because they are purchasing on an "as needed" basis and often cannot wait the six to eight weeks for overseas shipments. Typically, wire companies import about 30 percent of their wire rod, but the ratio has been narrowing into the 20 percent or less range. But aside from longer lead times, imported wire rod has not been too attractive lately as far as pricing goes . Import wire rod offers from Turkey, for example, remained stable throughout most of the summer while domestic prices wavered. Then, after rising in September and dropping slightly about two weeks ago, Turkish prices are expected to rise again soon in the face of higher scrap costs overseas and the US dollar's weak position against the Turkish lira. Even at the current price, $29.75-$30.75 cwt. ($656-$678/mt or $595-$615/nt) duty paid FOB loaded truck in US Gulf ports, offers are being largely ignored, and if Turkish mills decide to narrow the margin between their offers and domestic prices-currently at $31.50-$32.50 cwt. ($694-$717/mt or $630-$650/nt) ex-mill-the situation will worsen.