Viewpoint: Wire rod market to face oversupply

The mismatch between wire rod supply and demand experienced in some regions is expected to be eliminated in the near term, squeezing producers' margins which surged in the second half of 2020 and remained high almost for a year.

Several significant projects that have been under way in Russia, Turkey and Europe, along with reduced consumption in Asia, will create oversupply in the global wire rod market in the next few years.

Following an expansion of wire rod capacities by 600,000 t/yr at [Abinsk Electrometallurgical Plant (AEMZ) in late 2020](AEMZ), other large investments were scheduled in Russia for 2021-22. In late December, Russian producer Novorosmetall reported the commissioning of its new rebar mill with a projected capacity of 500,000 t/yr, and said it planned to add wire rod facilities in the near term. Also, Novorossiysk Rolling Plant is installing a new rolling mill in Shakhty with a projected capacity of 600,000 t/yr of wire rod and rebar. As a result, the producer will leave the export billet market when able to based on finished product price margins.

The Argus weekly fob Black Sea rebar and wire rod assessments inched up by $5/t and $10/t this week, to $685/t and $740/t, respectively, which is $55/t and $145/t over the billet index against peak levels of $105/t and $205/t in November 2021.

Fears of overcapacity started to grow in Turkey early last year, after three leading mills announced their plans to invest in new wire rod facilities.

The Argus weekly mesh quality wire rod assessment increased by $5/t to $785/t fob Turkey, with the rebar index standing at $695/t fob today.

But some key export outlets in Europe are looking to reduce their reliance on imports. One of the major European long products producers, Celsa, started testing its new wire rod facility in France, with a projected capacity of 550,000-600,000 t/yr in late December. The company is aiming to start selling its products locally or to Benelux countries. Part of its production will be consumed by Van Merksteijn International (VMI) subsidiary Intersig France, according to the official statement.

Poland's CMC commissioned an expansion of its wire rod line by 200,000 t/yr last autumn. Italy's Acciaierie Bertoli Safau officially launched its 500,000 t/yr wire rod plant in the first half of 2021, which is capable of producing drawing quality wire rod and other higher grades. In July 2021, Beltrame announced its plans to invest in rebar and mesh quality wire rod facilities in Romania, expecting to start production mid-2024. A few producers also modernised their rolling mills to meet market requirements and expanded their wire rod specifications.

In the first 10 months of 2021, Holland, Belgium, Romania, Germany and Italy were the top five importers from overseas destinations, with Poland occupying the sixth position. The total volume imported over this period amounted to 1.88mn t of wire rod, according to Eurofer data.

Along with significant tonnages consumed by European customers, overseas suppliers had opportunities to sell some products at higher prices. The spread between drawing quality wire rod and rebar increased to €60-90/t last year, while it was around €30-40/t before Europe cut the quota allocations from 1 July 2020 following reduced consumption caused by the Covid outbreak. Therefore, European buyers showed increased interest in wire rod imports, but because of tight trade restrictions they started to look for new suppliers, developing business with north Africa as well as looking for opportunities in the GCC and Asian markets. As a result, additional capacities are likely to put downward pressure on overseas suppliers' margins to Europe even if quota allocations are increased or removed as competition will rise sharply.