Although US merchant bar mills are likely to announce a February increase on the heels of another scrap increase, buyers may be becoming even more cautious as many think prices are not based on a firm foundation of demand.
While merchant bar demand has remained weak throughout the past several months, a surge in scrap prices allowed US merchant bar mills to increase transaction prices by $3.25 cwt. ($72/mt or $65/nt) in January. And now that shredded scrap prices have risen an additional $50/long ton within the past week, domestic mills will most likely try to take advantage of the momentum by announcing a February increase this week.
However, since domestic merchant bar price increases have been driven almost solely by raw material costs, many buyers and distributors worry that if the scrap price trend turns around, which could happen within the next month or two as scrap collection increases, merchant bar prices may not have a solid foundation to fall back on and could drop drastically. "Higher prices have scared some into buying but most of us are taking a more cautious approach because while prices have increased, demand hasn't," as one buyer put it.
Current published domestic merchant bar transaction prices lie within the range of $35.80 cwt. to $41.00 cwt. ($789/mt to $904/mt or $716/nt to $872/nt) ex-mill depending on size, shape and thickness. Actual spot prices are up to about $2.00 cwt. ($44/mt or $40/nt) below the published range depending on the product and size of the order.
While the price trend is up for now, US mills may begin feeling a little more pressure from offshore sources. Most sources stopped being competitive with merchant bar offers to the US over the last couple months of 2009, but already within the first couple weeks of the New Year, new offers have emerged from Turkey and Taiwan. These offers are still too close to US domestic offers to attract any buyers; however, they are on traders' radar. Turkish merchant bars are ranging from 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, while Taiwanese offers are a little higher, at about $35.50 cwt. ($783/mt or $710/nt) and up, duty-paid, FOB loaded truck in US Gulf ports. Furthermore, Mexican mills have increased their merchant bar offers by about $2.00 cwt. ($44/mt or $40/nt) since December and are now offering at approximately $32.50 cwt. to $33.50 cwt. ($717/mt to $739/mt or $650/nt to $670/nt) FOB delivered to the Houston.
According to license data from the US Steel Import Monitoring and Analysis System (SIMA), total monthly merchant bar exports more than doubled in tonnage from November, at 2,687 mt (preliminary census data) to December, at 7,542 mt. However, for the third consecutive month, Canada and Mexico were the only sources to export over 1,000 mt to the US in December, at 3,196 mt and 2,835 mt respectively.