US rebar demand likely to remain cool through summer months

US rebar demand remains soft, but an expected up-tick in US scrap prices this month, along with the continued absence of imports should help keep prices from slipping.

Since last week, most rebar offers from US mills have remained at an approximate range of $24.50 cwt. to $25.00 cwt. ($540 /mt to $551 /mt or $490 /nt to $500 /nt) ex-mill. Nucor and other domestic mills announced last month that they would keep rebar prices unchanged in July, but with US shredded and heavy-melt scrap prices expected to improve by $30 to $50/long ton ($30 to $49 /mt) this month, mills may announce a minor boost in their transaction prices for August. At the very least, the July scrap increase should help keep US rebar prices stable at the current level.

Still, despite the slight upward price pressure from scrap, on the demand side, conditions are still considerably weak, given the soft construction market. Distributors and fabricators report that after the slight up-tick in orders seen in the first part of June, activity in recent weeks has cooled down some. And according to data from the US DOC released Wednesday, spending on US construction projects fell in May for the fourth time in five months, dropping 0.9 percent from April. Residential construction spending fell 3.5 percent in May from April, as mounting foreclosures increased the supply of unsold homes and discouraged new building projects.

The DOC report also said that non-residential construction spending inched up by 0.1 percent in May from April, as public construction decreased 0.6 percent and private non-residential construction rose by 0.5 percent. But despite its small rise in May, the outlook for private, non-residential construction is not too rosy -- the Wall Street Journal reported this week that commercial property vacancies are rising in many parts of the country and developers are encountering increasing difficulties in financing for new commercial projects. Still, the start of many stimulus package-funded infrastructure projects across the country this summer is expected to give public construction for highways and other projects a boost in the coming months, and rebar should see at least a small benefit.

In the Western US, conditions for rebar are perhaps even weaker than in the rest of the country as this area has been the hardest hit by the housing collapse and the resulting fallout of commercial projects and tax revenue for public works projects. TAMCO, the largest rebar producer on the West Coast, last week reported a second quarter loss of $3.4 million, as sales fell 83 percent due the “collapse of infrastructure spending” in its main markets of Arizona, California and Nevada, and lower selling prices for rebar. Unfortunately, TAMCO does not see market conditions for rebar in the Western states improving anytime soon. James S. Marlen, the chairman and chief executive of TAMCO parent Ameron International Corp. said, “The market for steel rebar remains depressed; and TAMCO is currently forecasted to remain unprofitable in the second half of 2009.” TAMCO idled its production from December 2008 through April 2009 and began production again in May, though only on an intermittent basis.

Despite the low US rebar demand, supplies continue to remain relatively tight due to the lack of competitive import offers. Mexico generally remains the only source offering rebar competitively to the US, with most offers still ranging from $22.00 cwt. to $23.00 cwt. ($485 /mt to $507 /mt or $440 /nt to $460 /nt) delivered to Houston. Still, there are very few takers. Turkish offers also remain unchanged since last week at a range of $24.00 cwt. to $25.00 cwt. ($529 /mt to $551 /mt or $480 /nt to $500 /nt) duty-paid, FOB loaded truck in US Gulf ports though these offers are now trending slightly up due to the increase in Turkish scrap prices and domestic longs prices.

US import license data collected through June 30 show only 16,715 mt of rebar imports in June, with most of the tons coming from Mexico (11,132 mt) and Dominican Republic (5,493 mt). The June license total represents a significant drop from the preliminary import total for May of 40,748 mt and an even steeper drop from the 60,723 mt imported in June 2008. With very few orders being booked in the last couple months, US import rebar tonnage is not expected to start rising again anytime soon.