With international billet prices sinking below $300/mt FOB and scrap falling below $200/mt CFR, longs prices continue to slide worldwide and the US wire rod market is following the downward trend.
Although US rod producers are taking measures to reduce output, they have not been able to stop prices from sliding. Mills have not issued any official price decrease announcements, but buyers say that the domestic spot price for low carbon rod has slipped to a range of $45.00 cwt. to $46.00 cwt. ($992 /mt to $1,014 /mt or $900 /nt to $920 /nt) ex-mill. With raw material and import rod prices falling sharply and fears of a global recession intensifying, the downward movement of US rod prices is most likely not over yet.
Import rod prices in the US have also dropped in the last week, with most offers now ranging from $36.00 cwt. to $37.00 cwt. ($794 /mt to $816 /mt or $720 /nt to $740 /nt) duty-paid, FOB loaded truck in US Gulf ports. Offers from foreign mills (namely Turkey and China) continue to decrease on an almost daily basis, and the market has yet to show any signs that it is nearing its bottoming-out point.
However, there are some good reasons to be optimistic about the market. The attitudes expressed by the attendees and speakers at the SteelOrbis Fall '08 Conference and 59th IREPAS Meeting which took place in Hamburg, Germany from October 19-21 provided a good gauge of where the international longs markets are headed. Although there were obviously some serious concerns about the falling prices, the general opinion among the conference-goers seemed to be one of cautious optimism. There is still more room for prices to slide, most seemed to agree, but things should firm up within the next two quarters.
At the Traders' Committee, led by John Foster, COO of Coutinho & Ferrostaal, the panel members and audience discussed the reasons behind the current market situation. First and foremost, the fallout of the US housing market and resulting financial crisis were mentioned as the main culprits that have impacted steel demand. The bursting of the Middle East construction bubble and excessive speculation while prices were going up were also cited as major factors that led to the current price correction. Panelist Ulrich Pruss of Coutinho & Ferrostaal said that after the Middle East bubble burst, the market was left with three to 3.5 million unsold tons. "Within the next couple of months, people will be busy disposing of their stocks, and the losses could be tremendous," he said.
In addition to the weak demand, the amount of tonnage sold is also being restricted by fears that customers will not be able to pay because of the frozen credit market. "Customers still don't have funds today," panelist F.D. Baysal of SEBA International commented. "That won't change any time soon."
On the other hand, it was generally agreed that there is a good chance of a rather speedy market recovery for a number of reasons. The combined efforts mills are making to reduce steel production worldwide, increased consolidation in the market, and relatively low inventory levels were all brought up as reasons to be hopeful. New infrastructure projects, optimism generated from the US' new administration in 2009, and lower ocean freight rates were also cited as factors which would positively impact steel trade. And, of course, steel consumption in the developing nations, while slowing from its break-neck pace of recent years, is also still expected to continue in a strong fashion. In an informal poll of the audience, most thought that the market would stabilize within the next several months.
For now, wire rod prices in the US, along with other longs prices in the US and around the world, continue to trend down. However, with the industry's disciplined efforts to stabilize the market as well as the underlying demand for steel, a building block of modern society, the market will inevitably rebound. The question is when.