US wire rod price hike should succeed but import price momentum may be stalled

With supply lines remaining tight, US wire rod mills should be able to achieve another small price increase in September. However, demand is still not the key driver of the market's momentum, which may be cause for concern.

US rod producer Keystone last week announced a $10/nt ($11/mt or $0.50 cwt.) September price increase on rods and other mills are expected to follow suit. Such a small increase, which is in line with longs producers modest rise in raw material costs in July (despite benchmark US shredded scrap prices only rising $3/long ton in early August, SteelOrbis estimates that East Coast domestic shredded scrap numbers have actually risen by a minimum of $10/long ton since early July), is highly achievable for US rod producers, especially given the lack of import competition on rod. Nevertheless, with true demand having yet to show a marked improvement since plummeting in late '08/early '09, some fear that the US rod market could be forming another “price bubble.”

Annualized mill shipment and import/export data for 2009 show that US wire rod consumption is down a staggering 50 percent from 2008 levels. No doubt, the US housing and automotive markets are largely to blame for this drop, and with these markets now starting to slowly recover and inventory de-stocking of wire rod complete, US rod prices have stabilized and even started to trend slightly upward again. However, until demand returns to normal levels, a strong rise for US wire rod prices may not be sustainable.

US domestic offers for low carbon rod still range from approximately $28.00 cwt. to $29.00 cwt. ($617 /mt to $639 /mt or $560 /nt to $580 /nt) ex-mill. This range does not include the $10/nt price increase, which is likely to be accepted (though the jury is still out). Some mills report that they are already full for September, but as it is mid-August, being booked out through September is not an indication of stellar demand. Furthermore, some buyers comment that they suspect that there is still some domestic availability for September.

On the import side, traders say that they are still not getting many inquiries, though Turkish mills have continued to inch their prices up in recent weeks in advance of Ramadan, which will commence later this week. However, Turkish longs mills have not been booking many export orders since before their last price increase made in early August.

After rising by about $1.00 cwt. ($22/mt or $20/nt) last week, the import sales price of mesh-quality Turkish rod in the US remains this week at approximately $26.00 cwt. to $27.00 cwt. ($573 /mt to $595 /mt or $520 /nt to $540 /nt) duty-paid, FOB loaded truck in US Gulf ports. There is a good deal of doubt as to whether the Turkish mills will be able to maintain their recent longs price momentum, as export booking activity has been relatively subdued so far this month. Traders say that at this point, buyers will not consider any import rod offer over $27.00 cwt. (FOB US Gulf) seriously.