Despite the expected rise in US shredded scrap prices this month, in the context of the dismal housing and construction markets, combined with the usual “summer doldrums”, it will likely be a quiet summer for the US rebar market.
After keeping prices stable in July, US rebar market leader Nucor may opt to push rebar offers slightly higher for August if raw material costs increase significantly. However, if scrap rises by less than $40/long ton ($41/mt or $45/nt) or so, the mill may offset the increase in the RMS by dropping base prices again. At most, US mills are projected to hike rebar transaction prices by about $30/nt ($33 /mt or $1.50 cwt.), regardless of how much scrap rises. Currently, domestic rebar offers are range from approximately $24.50 cwt. to $25.00 cwt. ($540 /mt to $551 /mt or $490 /nt to $500 /nt) ex-mill.
On the demand side, distributors and fabricators report that they have seen a slight up-tick in activity over the last month or so, though overall demand remains weak. There will be some impact felt from the US Recovery Act-funded federal infrastructure investment projects like new road building set to come online in the coming months; however, the amount of steel consumed by these projects is not likely to be enough to make a significant impact on the rebar market. In fact, according to a study from IHS Global Insight released this week, even with the influx of “stimulus” funds, federal spending on infrastructure will actually decrease by 4.3 percent this year from last, with highway and street construction spending falling by 5.5 percent. And with commercial and residential construction projected to remain weak for some time as well, it will likely be a while before rebar gets a much-needed boost in demand.
Speaking of the ailing US construction market, Stephen Sandherr, CEO of the Associated General Contractors of America, commented in a recent press release, “While there is little doubt that the stimulus has helped slow the decline, the fact remains the construction industry has many long, slow and difficult months ahead as the one trillion dollar construction market continues to suffer from declining state and local revenue, little demand for commercial or retail facilities and shrinking orders for new factories and facilities."
On the inventory side, conditions are at least slowly improving, as distributors and fabricators are still only replenishing supplies on an as-needed basis, and competitive import offers from what used to be the largest offshore supplier of rebar, Turkey, remain virtually nonexistent. West Coast rebar inventories are also going down. Many West Coast traders report that they have reduced their inventories and that buyers have slowly started replenishing some of their depleted stocks.
Mexico remains the main import source offering rebar competitively to the US, and prices are still aggressive as Mexican mills remain highly motivated to move tons in the context of their own weak domestic market. Since last week, most offers from Mexico have remained at a range of $22.50 cwt. to $23.50 cwt. ($485 /mt to $507 /mt or $440 /nt to $460 /nt) delivered to Houston, though there are still not many takers. However, along with US producers, Mexican mills are reportedly fishing for an increase, too, and are therefore waiting until next week to take any new orders.
Turkish rebar offers for the US have also remained 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. But with the much cheaper Mexican offers, the Turkish offers still aren't getting any traction in the US.
The below graphic from the US Department of Commerce shows that after peaking in July 2007, US rebar imports have remained at relatively insignificant levels throughout the past two years. This trend is not expected to turn around this year, as current import lead times, at least for offshore suppliers like Turkey, are for at least late third quarter deliveries, which is a time of the year when imports typically slow down as importers seek to minimize their inventories before year-end.
