US merchant bar mills likely to try for another price increase

After US merchant bar mills kept September transaction prices unchanged from August levels, many distributors believed that mills would just try to hold on to current price levels through the end of Q4; however, depending on how high scrap prices increase this month, domestic mills may issue an increase on transaction prices for October deliveries.

Many distributors believe that if the raw materials surcharge increases by about $1.00 cwt. ($22 /mt or $20 /nt) or less, domestic mills will keep net merchant bar prices stable, but if the RMS increases by $2.00 cwt. ($44 /mt or $40 /nt) or more, it is likely that merchant bars will see a net increase of at least $1.00 cwt. ($22 /mt or $20 /nt). Nevertheless, mills are likely to take a little extra time establishing October pricing with the holiday season looming. November and December are traditionally de-stocking months and domestic mills do not want to increase prices only to be forced to decrease them a month later.

For now, published domestic merchant bar transaction prices continue to lie within the range of $36.05 cwt. to $41.25 cwt. ($795 /mt to $909 /mt or $721 /nt to $825 /nt) ex-mill depending on size, shape and thickness. While spot prices have firmed up some in recent weeks, many buyers will still be able to find spot deals around $1.00 cwt. ($22 /mt or $20 /nt) below listed prices.

Despite the likelihood of US scrap prices rising in September, there are some worries that as domestic demand continues to slump and production continues to inch upwards, the US merchant bar market may start to slide again. According to the latest Metal Service Center Institute (MSCI) shipment and inventory report, daily and monthly shipments of structural steel decreased from June to July, from 10,900 nt to 10,800 nt, and from 239,000 nt to 238,000 nt respectively. Meanwhile, monthly inventories increased from 529,000 nt in June to 536,000 nt in July. The average monthly inventory overhang also increased slightly, from an estimated 2.2 months in June to 2.3 months in July.

On the other hand, while demand remains lackluster, US merchant bar mills continue to have a little breathing room as import offers fail to attract much interest with the exception of some tonnage from Mexico. Mexico continues to be the most competitive foreign source offering merchant bars to the US, despite increasing offers by approximately $1.00 cwt.  ($22 /mt or $20 /nt) over the past two weeks. Most Mexican offers now range from around $32.00 cwt. to $33.00 cwt. ($705 /mt to $728 /mt or $640 to $660 / nt) FOB delivered to the Texas and California.

Turkish merchant bar import offers are said to be priced way out of the market, as one trader informed SteelOrbis that offers increased about another $3.00 cwt. ($66 /mt or $60 /nt) over the past couple weeks, after increasing by that same amount less than two weeks earlier. Most Turkish merchant bar offers can be found in the high $30s cwt. on the low end. It remains to be seen what action, if any, Turkish mills will take to get back into the import market once the Ramadan holiday ends in the third week of September.

Nonetheless, according to preliminary census data from the US Steel Import Monitoring and Analysis System (SIMA), total monthly merchant bar imports nearly doubled from June to July, from 5,676 mt to 10,691 mt. However, this figure is still lower than the year-ago July total of 14,973 mt. The top three exporters of merchant bar tonnage to the US during July were Turkey, at 4,689 mt; Mexico, at 3,105 mt; and Canada, at 3,065 mt. These were all significant increases from June, when Turkey only exported 275 mt, Mexico exported 2,465 mt and Canada exported 1,962 mt. 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).