While one mill's surprise base price increase this week was attributed to increased demand, other factors, such as rising fuel costs, are likely a more influential culprit.
Although predictions for March scrap prices have hovered in the "sideways to slightly down" range for the last few weeks, at least one US wire rod producer has jumped the gun and announced a base price increase for this month. Keystone Steel and Wire sent a letter to customers on Monday, stating that effective with shipments as of March 14, base prices for all wire rod products would go up $1.50 cwt. ($33/mt or $30/nt). Two reasons were given for the move: increased market demand and the rising costs of energy and transportation. But how much each reason is actually influencing the price of wire rod is up for debate.
Industry insiders who agree with the uptick in demand point to a recovering construction industry, but market data does not exactly support such claims. US construction spending stats for January 2011, released on March 1, revealed that the seasonally adjusted annual rate of $791.8 billion was 0.7 percent below the revised December 2010 estimate, and 5.9 percent below the January 2010 estimate. Furthermore, the US construction industry lost 75,000 jobs in January, boosting the construction unemployment rate to 24.7 percent--the highest on record since 1976.
On the other hand, rising fuel prices are undeniable. Intensifying conflicts in the Middle East, namely in major OPEC nation Libya, caused oil prices to jump 5 percent in February alone, and the possibility of $100/barrel prices are causing concern throughout the US. Although sensibilities alternate from day to day--reports on Monday were optimistic as some Libyan ports reopened to oil tankers, while Tuesday began with worries about widespread unrest across the Middle East--the influence of fuel costs on steel prices is evident, most notably in transportation costs. It is unclear at this time how long the volatile situation will continue, but it's safe to say that oil, rather than demand, is the most likely the primary component in Keystone's price increase.
The true test of demand's influence, however, will be in how successful Keystone--and other mills that follow--is in pushing through the increase, especially considering that current spot prices still lag approximately $3.00 cwt. ($66/mt or $60/nt) behind official asking prices. If wire rod buyers in the US are indeed eager for product, buying activity could push the spot range beyond the current level of $36.00-$37.00 cwt. ($794-$816/mt or $720-$740/nt) ex-Midwest mill by mid-month.
One factor that is not having much--if any--effect on current domestic wire rod prices is imports. Turkish mills are also proclaiming a surge in wire rod demand, and have taken an aggressive stand on offers to the US. While prices in the range of $35.50-$36.50 cwt. ($783-$805/mt or $710-$730/nt) duty paid FOB loaded truck in US Gulf ports have not changed since last week, US traders are finding little success getting even the low end of the range. However, few takers in the US will not have much sway on Turkish producers--Keystone's recent announcement will likely cause them to dig their heels in further, emboldened by the perceived uptrend in US domestic prices.