After shredded scrap dropped closer to the deeper end of expectations, already-soft domestic merchant bar prices will likely follow.
The last US merchant bar price increase-$1.00 cwt. ($22/mt or $20/nt) announced in mid-September-was for the most part accepted, the only exception being large-scale service centers giving out deep discounts to customers. However, as October approached along with rumors of a scrap decrease, buyers began holding off until official announcements were made. Now that shredded scrap has declined by $30/long ton, merchant bar prices are highly negotiable, even before the next mill announcement.
Despite the current discounts, mills will likely lower transaction prices for merchant bar, but not by the full scrap decrease-current predictions range from a $0.50-$1.00 cwt. ($11-$22/mt or $10-$20/nt) cut. Domestic demand is weak and somewhat attractive import offers have been trickling in, so even though US mills would like to hang on to most of the last price increase, chances are they'll be pressured to take a hit. Until a decision is made, current mill asking prices for merchant bar are in the range of $39.30-$44.50 cwt. ($866-$981/mt or $786-$890/nt) ex-mill.
As mentioned above, domestic merchant bar demand is listless, even in sectors that have been showing promising momentum such as manufacturing. According to the Institute of Supply Management (ISM), the manufacturing sector expanded in September for the 14th consecutive month, but ISM Manufacturing Business Survey Chair Norbert J. Ore advised against getting too optimistic over the results. "While the headline number shows relative strength this month as the PMI reading of 54.4 percent is still quite positive," Ore said, "the overall picture is less encouraging. The growth of new orders continued to slow...production is currently growing at a faster rate than new orders, but it typically lags and would be expected to weaken further in the fourth quarter."
This disconnect between manufacturing production and orders was evident in August, when service centers reported month-ending merchant bar inventories (at 736,000 nt) at the highest level seen since July 2009, while monthly shipments increased by about 9 percent. Unless end-use demand solidly improves soon, this situation-service centers shipping and overstocking for manufacturers that are building more than they can sell-might come crashing down on all involved.
As unlikely as it may seem in the current conditions, import activity has been picking up. Turkish merchant bar has dropped by about $1.00 cwt. ($22/mt or $20/nt) in the last month, bringing offers into the range of $37.50-$38.50 cwt. ($826-$849/mt or $750-$770/nt) FOB load truck at US Gulf ports for small sections and some structural channels and angles according to ASTM A36/A6. Merchant bar offers from Mexico have been heard at even less, in the approximate range of $36.00-$37.00 cwt. ($793-$815/mt or $720-$740/nt) duty paid FOB delivered to the US border.