Although US domestic merchant bar mills are still dealing with soft spot prices and weak demand, they may increase transaction prices within the next week on the heels of an expected scrap price increase.
US shredded scrap prices are expected to increase anywhere from $25 to $50 / ton this month. And while many dealers are predicting the full $50 /lt increase on August shipments will be passed on to customers, US merchant bar mills are unlikely to increase transaction prices by the entire amount.
Following May's $20 /nt ($1.00 cwt. or $22 /mt) merchant bar price hike announcement, domestic mills kept prices unchanged in June as the raw material surcharge remained at the same level as in May.. Now that scrap prices are expected to rise again, mills will likely pass some of that increase onto customers by lowering base prices to offset some, but not all, of the increase in the RMS. Mills are unlikely to match the scrap increase by keeping base prices unchanged, however, for fear of creating too large of a gap between list prices and current spot prices. Many distributors expect domestic mills to increase merchant bar prices by at leasthalf of the scrap increase, if the increase is $40/ton or greater. Then again, if the increase in scrap this month is less pronounced than expected, mills may opt to offset the RMS increase entirely.
In the meantime, published merchant bar transaction prices remain within the range of $34.05 cwt. to $39.25 cwt. ($751 /mt to $865 /mt or $681 /nt to $785 /nt) ex-mill depending on size, shape and thickness. Mills are hoping that the next increase at least firms up spot prices, which are currently, on average, a couple dollars-per-hundredweight under published prices.
On the plus side for domestic mills, according to the latest Metal Service Center Institute (MSCI) shipment and inventory report, structural steel inventories continued to diminish in May, to about 553,000 nt, down from 578,000 nt in April, as daily shipments actually increased from April to May, from 10,700 nt to 10,800 nt respectively. Nonetheless, while service center inventories shrunk closer to the level where they'll eventually have to be replenished, average inventory overhang still increased from 2.5 months in April to 2.6 months in May.
Meanwhile, merchant bar import offers are very quiet. Mexico continues to be the most common and virtually only competitive foreign source offering merchant bars to the US, despite increasing prices by about $3.00 cwt. ($66 /mt or $60 /nt) since early June. As a result, most Mexican offers can now be found hovering around $31.00 cwt. to $32.00 cwt. ($683 /mt to $705 /nt or $620 /nt to $640 /nt) FOB delivered to California and Texas. While Mexican offers may still be able to offer buyers a significant price break over US domestic offers, US mills remain extremely aggressive against any business they may lose to an import counterpart. Korean offers have disappeared completely from the market, while Turkish offers are priced too high to be competitive, with most offers falling somewhere in the mid-$30s cwt., and vessel availability remains an issue.
According to license Data from the US Steel Import Monitoring and Analysis System (SIMA), total monthly merchant bar imports likely increased in June over May, from 4,916 mt (based on May census data) to 5,974 mt (June licenses), which would mark the first, however slight, monthly import increase for merchant bars since December. Still, merchant bar imports were severely down from June of last year, when they totaled 15,978 mt. The top two import sources in June 2009 remained Canada and Mexico; however, Mexico, at 2,619 mt, exported more to the US than Canada, at 1,967 mt, for the first time since August. The reported data is for light sections of carbon and alloy steel, U, I, L, T and H shapes of 3" or smaller (does not include rounds, squares, or flats).