With falling inventory value and continued soft demand for their product, US wire makers continue to feel the pinch of the slow economy.
Losses are piling up among many US wire drawers as weak demand from the housing and automotive sectors continues to drive down the price of their product, while the declining value of raw material inventories purchased prior to the plunge of wire rod prices are taking a bite out of profits as well. Being one of the most affected sectors of the US steel market by the housing and automotive crises, some US wire companies have not been able to survive the prolonged downturn in business, and some others are on the brink.
The latest victim of the down economy is Dayton Superior, a producer of concrete reinforcement wire products which filed for Chapter 11 bankruptcy this week. Another wire company that filed for bankruptcy this year is ECD (Eastern Cold Drawn) Wire. While Dayton Superior has received funding for reorganization and plans to continue normal business operation while restructuring, stainless wire producer ECD had to sell of its inventory at major losses and faces claims of millions of dollars owed to many of its suppliers. Other companies are also vulnerable, especially if the poor business conditions continue.
Companies are having to make some tough choices in order to stay afloat. North American wire producer Tree Island Industries, in its fourth quarter earnings statement released last month, said it has had to take significant measures to cut costs as a result of the sharp downturn in business, including the closure of two of its US manufacturing facilities, reducing total workforce by more than 30 percent and suspending cash distributions to unit holders. And their story is not unique - virtually all US wire makers, at the very least, have had to lay off workers and significantly reduce their production.
Even very cash-strong companies like Insteel Industries are having a tough time. Last week the company reported loss of $16.4 million for its fiscal second quarter ended March 28. Inventory write downs, reduced shipments, the consumption of higher cost inventory purchased before the collapse in steel prices, and escalation in unit conversion costs resulting from reduced operating schedules at its manufacturing facilities were all cited as reasons for the quarterly loss and $22 million loss for the current year. However, CEO H.O. Woltz III said he is expecting some seasonal boost in the second half of the year.
In fact, some wire companies are already reporting a slight seasonal boost in demand, though, as one mesh maker put it, the minor up-tick is "nothing to write home about." The wire and mesh company executive said that it continues to be a buyer's market as buyers are pitting suppliers against each other, driving the price down, and creating "a bidding war for each load of material."
With suppliers competing fiercely for business, the market price for wire mesh and other wire products, especially in regions like Texas where suppliers are plentiful, has become increasingly negotiable, similar to that of wire rod. The going price for 10 g mesh is between $55 and $56/roll and for 6 gauge mesh, between $25 and $26/roll. However, due to the stiff competition amongst suppliers to attract business, some companies are offering at below these prices.
In efforts to recoup some of the losses they are suffering from their high cost rod inventories, some wire drawers are trying to liquidate their rod inventories, which is indicative of just how weak the market has become. It will, indeed, be quite difficult for the wire market to pull itself out of the current slump.
On the bright side, the higher cost rod inventories are slowly being consumed or liquidated, and so the sharp operating losses among US wire drawers should soon come to an end. The aforementioned recent up-tick in demand, however minor, is another positive sign, as are the indications that the US economy and steel market in general, while remaining weak, are beginning to level off. And while imports of finished products containing wire remain a concern, drawn wire imports are still, generally, on the decline, which should also help the domestic market regain some market share. It may be a while before US wire companies return to the sky-high profits of yesteryear, but there are at least a growing number of indications that worst may be behind us.
US Department of Commerce Data show that drawn carbon wire imports decreased to 18,685 mt in April 2009, compared to the 58,912 mt imported a year ago, and the 50,300 mt monthly average for 2008. The largest import sources for drawn wire remain China, Canada and Mexico, with each country respectively importing 4,818 mt; 4,618 mt; and 4,260 mt in April 2009.
