The recession has taken a heavy toll on the US longs markets, and it will likely be some time before business returns to normal levels, according to presenters at SteelOrbis' second-annual Steel Trade Conference of the Americas.
Representing the US wire rod and rebar markets at SteelOrbis' inaugural Americas event, held in San Diego, California last week, were: Mr. Mike McCall, former president of Ivy Steel and Wire and current chairman of the Wire Reinforcement Institute; and Mr. Brian Archer, Trading Manager - Wire Rod & Rebar at Corus International Trading Ltd. Both speakers indicated in their presentations that although market conditions for US longs seem to have bottomed, there is no speedy rebound in sight.
Mr. McCall presented a time-line of events that have taken place the US wire rod market over the last year, tracking the market from peak to trough. Mr. McCall said that a little over a year ago, in June 2008, the US wire rod market was on controlled order entry. Rod was scarce, though there were no import orders taking place due to the high import price. Rod customers relied almost entirely on domestic mills to meet their needs and prices rose accordingly. In July and August 2008, some planned maintenance shutdowns of US rod mills started to take place, and people started placing import orders. Business dropped off in August and September, though market professionals presumed that demand would come back once the Olympics and Ramadan ended. But come October, said Mr. McCall, there was still no business to be seen.
By the end of last year, the US rod market was beset by high inventories, as the import orders placed at the beginning of the third quarter had started to arrive in droves. Furthermore, domestic orders placed at the peak of the market were still being shipped, and there were no signs of a return in demand.
In the first half of 2009, customers were inundated by overpriced inventory. Lay-offs started to take place, plants closed, and businesses had to write off their high priced inventories. Rod mills ultimately reduced production to under 50 percent capacity.
As of the beginning of the second half of 2009, de-stocking activity has finally completed, and consumers' rod inventories are now at a five-year low, said Mr. McCall. However, business is still slow, and as a result there were more lay-offs and more plant closures. Ultimately, about 700,000 tons of US wire rod production capacity has been removed from the market, said Mr. McCall, referring primarily to the July closure of ArcelorMittal's Georgetown, South Carolina plant (Gerdau Ameristeel's Perth Amboy, New Jersey plant will also close in the second half, taking another 500,000 tons of annual wire rod production capacity out of the market).
While demand remains weak, these production-cutting and inventory-reduction measures have paid off, as rod prices are starting to inch up again. However, Mr. McCall does not expect the market to post a major recovery until late 2010 to 2011.
Mr. Brian Archer shared some similarly daunting figures that illustrate just how far the US longs market has declined since last year, and how deep of a hole the market has to climb back out of. In his presentation, entitled “Surviving a 50 percent market,” Mr. Archer said that raw steel production in the US is off 51 percent, year-to-date, as of July 18. Steel shipments are also off by at least 50 percent from last year's levels, as is US wire rod consumption. Even worse, US wire rod consumption is estimated to be down by approximately 70 percent in 2009 from 2007, said Mr. Archer. Rebar consumption dropped 23 percent in 2008 from 2006 and the gap is expected to be even wider in 2009. Rebar imports also dropped by 62 percent from 2006 to 2008.
On the other hand, economic indications are starting to stabilize as of the second half of 2009. The US wire rod and rebar markets seem to have finally bottomed, de-stocking is near complete, and prices are starting to increase. Import levels are projected to remain low, however, as customers, uncertain about the recovery, will prefer to continue buying only small amounts from domestic mills. Overall, said Mr. Archer, US longs demand remains weak.
The full PowerPoint presentations of Mr. McCall and Mr. Archer will be made available to attendees of the SteelOrbis Steel Trade Conference this week at www.steelorbisevents.com.