US wire market weighed down by rising costs, weak demand

Cost-driven, rather than demand-driven price increases, bad weather and apprehensive customers have contributed to the sluggish US wire market.

Demand is very weak across the US wire industry, from mesh to drawn wire, but conditions are particularly weak for any products related to construction. On the building mesh side of the market, 10 gauge roll pricing in the Gulf Coast and southeast US has elevated above the $50/roll mark, compared to $47 to $48/roll as last reported in the fourth quarter of 2009. Mesh companies are pushing for prices in the $54 to $55/roll range, but are actually getting closer to $51 to $52/roll.

Meanwhile, drawn wire producers in the US have announced price increases that mimic the wire rod price increases that were announced for January and February. However, wire producers have had a difficult time passing along the raw material cost increases to their customers, similarly to wire rod producers.

As 2010 began, rod mills had a good amount of price control despite the slow demand, due to few import options and low customer inventories. However, because the US wire rod price hikes in January and February were entirely cost-driven, some wire drawers opted not to buy anything at that time, or only bought the bare minimum. The end-markets for mesh-grade applications also saw a long and slow recovery ahead of them. Sales were especially down because of recent bouts of harsh winter weather. With limited confidence in the first quarter price hikes, most wire producers decided to play it safe, and decided to not buy much rod until they started to see some demand improvements—which they still have not.

Additionally, wire imports have not entirely dried out despite a series of successful antidumping orders. Earlier this week, the US Department of Commerce and US Customer and Border Protection began looking into allegations—presented by a coalition of US manufacturers of steel wire products—that certain companies deliberately evaded the antidumping duties to which they were subject. The Coalition for Enforcement of Antidumping and Countervailing Duty Orders accused specific foreign manufacturers of such evasive schemes as falsely designating a third country as the country of origin for shipments, modifying products in third countries to avoid duties, or displaying false country of origin labels on products. Trade cases had already been filed against a number of products containing steel wire from China, including PC strand, wire hangers, springs, and several others, and the alleged shenanigans have only complicated the market for domestic wire and wire products manufacturers.

Whether or not the import issues are resolved in the domestic market’s favor, a rebound in demand seems farther off than wire companies would hope. In January, construction companies lauded stimulus spending as the one bright spot in the industry, but the US government issued a budget proposal February 1 that announced a freeze on “non-security domestic discretionary spending”, including most federal construction programs. With the commercial and residential sectors also remaining depressed, industry insiders predict that construction will not pick up much until the second half of 2010, going into 2011.

The wire industry seems to be in a better position than it was a year ago, but the recovery process is slow. Insteel Industries, one of the largest US producers of steel wire reinforcing products for concrete construction applications, reported three weeks ago a net loss of $1.1 million for the first quarter of fiscal year 2010, which compares to earnings of $2.8 million for the fourth quarter of fiscal year 2009. Although the firm’s selling prices decreased only 1.7 percent in the most recent quarter compared to the previous quarter, shipments decreased by 31.4 percent, and the company cited the typical seasonal downturn, compounded by ongoing weakness in nonresidential construction and adverse weather conditions. Spreads between selling prices and raw material cost narrowed while unit conversion costs increased from reduced operating schedules.

H.O. Woltz III, President and CEO of Insteel, summed up the market conditions by stating, “In spite of weak demand, prices for our primary raw material, hot-rolled steel wire rod, appear to be trending higher in response to the escalating scrap costs for wire rod producers. It may be difficult for us to recover these additional costs in our markets should the competitive dynamics that we experienced during the first quarter persist.” However, he did offer some semblance of optimism, stating that his company is determined “to seek growth opportunities that may develop in this difficult macro environment.”