Over the past month, the US merchant bar market had demonstrated signs of leveling out, but it is becoming more apparent that there will be further softening before the market can improve.
Weaker than anticipated demand continues to be the primary factor preventing the merchant bar market from staying level. According to the most recent shipment and inventory report from the Metal Service Center Institute (MSCI), December 2008 inventory levels were equivalent to about 3.6 months on hand in the warehouse, which is the highest amount of inventory per month in over two years.
Combining weak demand with declining scrap prices will most likely force mills to lower their merchant bar product prices. The raw materials surcharge will decline by about $30 /nt ($1.50 cwt. or $33 /mt) and there is no chance that the mills will able to raise their base prices to retain their effective prices. The most likely scenario is that the mills will keep the base prices the same and allow the effective prices to decline by $30 /nt.
Buyers indicate that discounting on list prices is common practice right now, by as much as $5.00 cwt. ($110 /mt or $100 nt). Nucor may put a stop to these discounts by lowering pricing more than the declines in scrap prices, to reflect a realistic price level.
But for now, official domestic merchant bar prices continue to range from $41.55 cwt. to $49.25 cwt. ($916 /mt to $1,086 /mt or $831 /nt to $985 /nt) ex-mill depending on size, shape and thickness. Prices are expected to decrease by $1.50 cwt. ($33/ mt or $30 /nt) with Nucor's pricing announcement which is expected this week. Until then, transactions can be negotiated using this decrease, based on order, size and customer. Beyond March, depending on scrap, economic stability and demand, merchant bar products could see another slight decline before any uptick.
On the import side, merchant bar offers continue to have the same difficulties in attracting interest from serious buyers. Lead times and credit issues are too powerful to overcome right now for most buyers, and with domestic mills lowering their prices, any noteworthy import price breaks will probably require significant tonnage, which may be a deal breaker for apprehensive buyers.
South Korea has become the most active merchant bar importer to the US West Coast and has left its price range unchanged from our report two weeks ago, at approximately $34.00 to $35.00 cwt. ($750 /mt to $772 /mt or $680 /nt to $700 /nt) duty-paid, FOB loaded truck in West Coast ports. There may be opportunities for negotiations, for the right size and product; however, South Korean mills are not being as flexible as domestic mills with negotiations.
Mexico has remained firm with their import offers which continue to range from about $35.00 cwt. to $36.00 cwt. ($772 /mt to $794 /mt or $700 /nt to $720 /nt) delivered to California and Texas.
Meanwhile, because of declining billet and scrap prices, Turkish offers are trending slightly down. But for now, their range remains at approximately $34.00 cwt. to $35.00 cwt. ($750 /mt to $772 /mt or $680 /nt to $700 /nt) duty-paid, FOB loaded truck in US Gulf ports.
License Data from the US Steel Import Monitoring and Analysis System (SIMA) demonstrate that Canada and Mexico are expected to be the top two importers of merchant bar products during January 2009, at 3,615 mt and 2,465 mt respectively. This would mark the tenth consecutive month that Canada and Mexico are the top merchant bar exporters to the US. The data are for light sections of carbon and alloy steel, U, I, L, T and H shapes of 3" or smaller (does not include rounds, squares, or flats). The data indicate that merchant bar imports have slowed down significantly due to the overall state of the consumption levels.