The demand for US merchant bar products continues to remain weak, leading to further price declines and inventory overhang. Nobody really expected a flourish of new merchant bar product demand heading into 2009, but most steel and construction professionals did expect demand to increase slightly, after a monumental decline during the fourth quarter 2008.
According to the latest Metal Service Center Institute (MSCI) shipment and inventory report, steel bar demand, or at least shipments, did slightly increase in January from December. Daily January shipments of steel bar totaled about 12,600 nt compared to 11,200 nt of daily shipments in December. Furthermore, the average length of time bar inventory is expected to remain in the warehouse was 3.5 months in January, compared to 3.6 months in December. However, December is a traditionally slow month for demand. In fact, January 2009 demand levels were far less in comparison to January 2008, which had approximately 20,400 nt of daily bar shipments and only 2.4 months of inventory overhang. Moreover, January 2009 bar inventory in service centers totaled about 919,000 nt, compared to 888,300 nt of bar tonnage in December. This was the first monthly inventory level increase since June 2008, mainly due to significant production cuts towards the end of 2008.
Mills will have to continue their production cuts in order to help control the supply and demand ratio. Otherwise, prices will be more susceptible to downward pressure moving forward.
In the meantime, official domestic merchant bar prices have decreased by $1.50 cwt. ($33 /mt or $30 /nt), mostly due to the $30 /nt ($1.50 cwt. or $33 /mt) raw materials surcharge (RMS) decrease, since our last report two weeks ago, and now range from $40.05 cwt. to $45.25 cwt. ($883 /mt to $998 /mt or $801 /nt to $905 /nt) ex-mill depending on size, shape and thickness. However, official mill prices remain soft due to inventory overhang and, while no further official price announcements are expected until mid-March, discounts may currently be negotiated depending on order, size and customer.
Merchant bar price offerings on the import side are also trending down, to compete with domestic offers. However, the fact that considerable import price breaks will probably require significant tonnage, in addition to the lead times, may be a deal breaker for many buyers in this volatile market.
Over the past couple of weeks, Mexico has become aggressive again offering merchant bars to the US, declining its offerings by approximately $1.00 cwt. ($22 /mt or $20 /nt). As a result, most import merchant bar offers from Mexico are now in the similar range as South Korean offers, at around $34.00 cwt. to $35.00 cwt. ($750 /mt to $772 /mt or $680 /nt to $700 /nt). Mexico offers are delivered to California and Texas, while South Korean offers are duty-paid, FOB loaded truck in West Coast ports.
Turkish offers also continue to trend slightly down. However, many mills are looking to purchase scrap again, which could lead to price stabilization. In the meantime, most Turkish merchant bar offerings to the US have remained unchanged from two weeks ago, within the range of approximately $34.00 cwt. to $35.00 cwt. ($750 /mt to $772 /mt or $680 /nt to $700 /nt) duty-paid, FOB loaded truck in US Gulf ports. Nonetheless, Turkish mills may be willing to negotiate for significant tonnage and quick orders.