The US wire market continues to face plenty of challenges, as sluggish wire demand and high-priced rod inventories are giving rise to major losses across the industry.
Demand for both wire and wire mesh remains depressed due to the slumping demand from the construction, appliance and automotive industries. The general malaise in the economy and uncertainty as to whether the steel market has hit bottom are other factors that are inhibiting wire sales.
At the same time, most wire drawers have rod inventories that were purchased when market prices were much higher than the current market prices. Wire customers want the price they pay to fully reflect the decreases in raw material pricing, and competition between the wire companies demands that wire prices reflect these cost decreases. However, many wire companies are still working through their higher-priced rod inventory and have yet to see their raw material costs go down. This situation is, as one wire drawer put it, "a recipe for big losses."
A major US wire producer, Insteel Industries Inc., this week reported a $5.6 million loss in its fiscal first quarter, citing weak demand and rising raw material costs. While sales prices during the quarter ended December 27 rose by 51.2 percent compared to Insteel's first quarter of the previous year, shipments fell by 38 percent.
Insteel CEO H.O. Woltz explained,"Customers continue to be highly conservative with their purchasing activities in view of the weak outlook for construction markets and to minimize their inventories in this volatile pricing environment."
Looking forward, Woltz said that, while it is hard to determine the future given the uncertain state of the economy and credit markets, he expects the financial results to improve in the second quarter as customer's inventories are drawn down and the high-priced rod inventory is worked through.
Generally, the entire wire market is very weak, though products used in construction are especially soft. The market for bright basic wire is so-so at best, while construction-related wire products like building mesh and chain link fence are even weaker. SteelOrbis has learned that building mesh prices have continued to deteriorate in the last month, with 10 gauge rolls now ranging from approximately $69 to $71 per roll in the Texas market. This reflects a decrease of about $10 per roll since last month. Also, while China was absent from the American wire market in the first half of 2008, some extremely low-priced Chinese galvanized wire imports have begun to surface in the US, which is also cause for concern for US wire drawers.
However, one bright spot for the US wire industry, and for the steel industry in general, is President-elect Obama's proposed economic stimulus package, which includes billions in infrastructure spending. House Democrats on Thursday unveiled their version of the economic recovery package, which provides for $90 billion devoted solely to infrastructure projects. The legislation designates $30 billion for highway construction, $4.5 billion for inland waterways and other projects, $10 billion for transit and rail, $3 billion for airport improvements, as well as $31 billion in long-term energy cost-saving updates to federal and public infrastructure. The President-elect has endorsed the bill, and Congress will consider it in the next two weeks.
Nevertheless, even if the President-elect is able to sign the bill into law by mid-February as House Democrats have promised, it will still be several more months after that before the steel industry is able to reap the benefits. Until then, given the deteriorating economic conditions, US wire demand will likely continue to be very slow. However, as Insteel's H. Woltz indicated, lower-cost raw materials entering production and wire customers' slowly shrinking inventories are both mitigating factors that will hopefully soften wire producers' losses.