US merchant bar inventories high, import demand softens

As world demand for merchant bars is slowly decreasing and US service center inventories are pretty healthy, the import pricing trend is looking slightly down. The fourth quarter has traditionally been the slowest time of the year, and 2006 will not be an exception. Entering the fourth quarter, the market is calming down, and world demand for merchant bars is not as solid as it has been. With scrap prices coming down globally and import billet prices softening, the merchant bar market has been trending down. Inventories at US service centers are at a good level, but some buyers say inventories are even on the high side because many shipments are still pending between now and December 2006. Traditionally, steel companies refrain from having large inventories in December to show better year-end financial results. They also try to avoid inventory taxes which could be very high in some places such as Houston, TX. Because of this, new import booking levels are not very strong, and demand is pretty low from an import perspective. However, end user activity remains decent even though it has slowed down from the levels seen earlier in the second quarter. Taiwanese merchant bar offerings have not changed from our last report two weeks ago, remaining at a range of $29.50 cwt. to $30.50 cwt. ($650 /mt to $673 /mt or $610 /nt to $630 /nt) FOB loaded-truck, at Gulf and West Coast ports. Although Turkish billet prices are softening, merchant bar offers still range from $30.50 cwt. to $31.50 cwt. ($673 /mt to $695 /mt or $610 /nt to $630 /nt) FOB loaded-truck, US Gulf ports, as stated in our report two weeks ago. Final license data from the United States Import Administration shows for July 2006, the top five small sections exporters to the US were: Japan at 9,072 mt (a great majority of which were probably joist-size angles); Canada at 7,845 mt; Turkey at 4,644 mt; Brazil at 3,589 mt; and Mexico at 2,263 mt. Data is for light sections of carbon and alloy steel, U, I, L, T and H shapes for 3” or smaller (Does not include rounds, squares, or flats). Domestically, the merchant bar market is relatively strong. We are at a point where the mills are full, domestic demand is decent, and prices are stable. It is widely believed that the pricing trend will remain pretty flat until the end of the year, and no major price increase or decrease will take place. With the scrap market falling a bit, there was some speculation as to whether or not Nucor would also lower their transaction prices for their long products. To the contrary, Nucor lowered their Raw Material Surcharge (RMS) to $3.65 cwt. but made a corresponding upward adjustment in their base prices, making no change in their net price for September. This move is perhaps another indication of healthy order backlogs. Current domestic transaction prices for merchant bars range from $30.90 cwt. to $38.45 cwt. ($681 /mt to $848 /mt or $618 /nt to $769 /nt), depending on size, shape, and thickness.