The US merchant bar market is still dominated by the weak demand which has persisted over the past several months, and while demand is not expected to improve in the first quarter of 2009, some key factors provide some encouraging signs for the market. However, most market players aren't going to be too optimistic until they see actual results.
Perhaps the most anticipated factor that could help the merchant bar market, along with other steel products, is the new administration's proposed $825 billion economic stimulus package, which will provide an estimated $90 billion in infrastructure funding, $31 billion of which will be used directly for the construction and repair of federal and public infrastructure. While some steel industry advocates expected more infrastructure funding and believe that more funding is necessary in order to make a real impact in the industry, the $90 billion could contribute to the many projects that are ready to begin immediately. However, effects of this funding are not expected to be seen on the steel level until the second quarter-to-latter half of this year.
The Metal Service Center Institute (MSCI)'s shipment and inventory report shows the grim realities of today. US service center bar inventories were at their lowest levels in over two years in December, at 888,000 nt. However, as expected, demand continued to decrease throughout the fourth quarter and was punctuated with the lowest volume of monthly shipments in over two years, at 246,000 nt in December. Further demonstrating the dismal demand level, due to the slow shipment levels, December also posted the highest amount of inventory per month in over two years, at 3.6 months.
Many service center execs expect overall demand levels to slowly begin increasing this month, as is usually the case in the months following the slow holiday season. There is already a bit more buying reported than in December, but January will still be a weak month in terms of sales, and the market is certainly not ready for a price increase yet.
For March, a price increase may be possible if there is any upward movement in scrap prices; however, scrap prices have also been stagnant lately. There was only a slight increase in scrap prices last month - As you may remember, Nucor raised the February raw material surcharge (RMS) for long products by $8 /nt ($0.40 cwt. or $9 /mt), making for the second RMS increase in two consecutive months, while merchant bar transaction prices remained stable for the second consecutive month.
Official domestic merchant bar prices continue to range from $41.55 cwt. to $49.25 cwt. ($916 /mt to $1,086 /mt or $831 /nt to $985 /nt) ex-mill depending on size, shape, thickness. There are transactions below this level, however, based on order size and customer.
On the import side, merchant bar offers continue to attract little interest, even though the price gap has become more attractive. Buyers don't want to increase their inventory size and commit to large import orders with long lead times before they see the worst of the economic crisis. The economy had remained a major concern even though most buyers believe prices will not decline further in the future months.
Mexico has been and remains the most active of the import sources. Due to the slight increase in scrap prices and their increased local demand, Mexico has raised its merchant bar offers to the US by $1.00 cwt. ($22 /mt or $20 /nt) and they now range from approximately $35.00 cwt. to $36.00 cwt. ($772 /mt to $794 /mt or $700 /nt to $720 /nt) delivered to California and Texas.
Meanwhile, South Korean and Turkish import offers remain unchanged from two weeks ago, and continue to be in the range of about $34.00 to $35.00 cwt. ($750 /mt to $772 /mt or $680 /nt to $700 /nt). South Korean offers are duty-paid, FOB loaded truck in West Coast ports, while Turkish offers are duty-paid, FOB loaded truck in US Gulf ports. Turkish mills have also expressed interest in firming up their prices, and while an actual increase may not occur, any price decreases seem highly unlikely for now.
License Data from the US Steel Import Monitoring and Analysis System (SIMA) indicate that Canada and Mexico exported more merchant bar products to the US in the fourth quarter 2008 than any other foreign countries, with 11,090 mt and 6,218 mt respectively. Total import arrivals to the US during the fourth quarter were 17,746 mt. The data are for light sections of carbon and alloy steel, U, I, L, T and H shapes of 3" or smaller (rounds, squares, or flats are not included).