The tenuous combination of sluggish end-use demand with skyrocketing domestic wire prices has left many whispering the dreaded "B" word--bubble.
Back in mid-November, when the US wire market was preparing for the annual slow winter season, the mild mill-announced $1.00 cwt. ($22/mt or $20/nt) price increase for December shipments was largely met with shrugs. Despite mill efforts to push for asking prices, and regardless of early chatter about a hefty scrap price increase in December, the general wire buying public continued to only buy what they needed at spot prices averaging around $31.50 cwt. ($694/mt or $630/nt) ex-mill. Inventories dwindled (purposely, in many cases), and buyers figured that even with a substantial boost in raw material costs, mills couldn't possibly expect to raise wire rod prices. Boy, were they in for a surprise.
Mesh producers and wire drawers alike were taken aback at the $3.00 cwt. ($66/mt or $60/nt) transaction price increase that mills announced for January shipments, and it didn't take long for December order books to fill up. By mid-month, wire buyers were already stuck with the January wire rod increase, bringing spot prices into the $34.00-$35.00 cwt. ($750-$772/mt or $680-$700/nt) ex-mill range. Prices for 10 gauge rolls of wire mesh are currently $59/roll (reflecting pre-increase prices), but as soon as the January rod shipments roll in, mesh prices will be closer to $63/roll. Mesh producers are concerned that because there has been no real recovery in demand for their products, the rapidly rising wire prices are indicative of a bubble that will burst sometime in the first quarter of next year.
Construction activity, which mesh producers primarily depend on, confirms this fear. Recent US Census Bureau data show that despite a monthly increase of housing starts in November, building permits--a more long-range indicator of demand--declined both month-on-month (4 percent) and year-on-year (14.7 percent). Last year's spring uptick in construction activity didn't exactly pan out, and this year could very well follow the same pattern of intense expectation (and inventory build-up) followed by a substantial let-down. According to one Gulf coast-area mesh producer, not only will demand not improve in 2011, but "significant recovery will not be seen until 2012."
For the time being, wire prices are likely to rise at least through February, as another major scrap increase is expected next month (approximately $40/long ton for shredded). This has cast a new, attractive light on imports, which have been rather unattractive in the last couple months. Currently, wire rod offers from Turkey are in the range of $33.00-$34.00 cwt. ($728-$750/mt or $660-$680/nt) duty paid FOB loaded truck in US Gulf ports, with some deals into the Gulf reported as low as $32.50 cwt. ($717/mt or $650/nt). For now, US-based traders have not reported a sizeable increase in bookings, but they've noticed an uptick in inquiry calls.