Frank Bergren, managing director of Metal Partners Rebar, discusses the state of the union for the rebar industry in the face of disputes with Turkey- and Mexico-based suppliers
Modern Metals: What do you think will be the most significant impact of the various lawsuits with and against Turkey- and Mexico-based rebar suppliers?
Frank Bergren: The most significant impact will be related to pricing. The reality of the lawsuit is that either way, it will generate a higher finished goods price. If U.S. domestic mills win the suit, it gives them flexibility to raise transaction prices with reduced competition. The two significant import sources to the U.S. today are Turkey and Mexico—the successors that could be lined up to fill the void are Spain, Portugal, Korea and/or Japan. However, those countries are not at the same cost levels as Turkey or Mexico because of logistical inefficiencies and production capabilities. It is likely that an agreed tariff rate will be imposed on both Turkey and Mexico, a compromise that will still push the finished goods price upwards.
MM: Will the legal action kick start a ramp up of production in U.S. mills or price adjustments to available rebar?
FB: U.S. mills have been operating around the 70 percent capacity range on average, so while the capability for the U.S. mills to ramp up production is there, not much is planned and certainly not the approximate one million tons of supply that is brought in between Turkey and Mexico. If demand far exceeds supply, we will see further price pressure as the rebar market is expecting approximately a 10 percent increase in demand for 2014.
MM: Is there potential for a drag on new construction and on the economy because of the reduced availability of your product?
FB: I don’t see any drag on new construction as a result of this—the U.S. market is still one of the most attractive and resourceful countries for investment. It could encourage exports to the U.S. from other countries or potential investment for new capacity to evolve.
MM: What are some steps U.S. mills/suppliers can take to meet increased demand? Is there room for more efficiency in production and delivery?
FB: It is challenging for U.S. mills to make the decision to ramp up production, given the unknowns with the trade case. The most proactive effort would be to build inventory and plan with customers accordingly. The tone for 2014 is optimistic and it is important to understand what the particular needs and demands are going to be. Most rebar fabricators have strong backlogs which can be communicated up the supply chain so a surge doesn’t shock the system. The efficiencies that exist lie within proper planning and delivery expectations.
MM: Metal Partners Rebar isn’t just a distributor but a fabricator as well. How has being one impacted the other? And do you see any emerging trends for smaller job shops and increased customization?
FB: The versatility of being both a distributor and fabricator allows us to be flexible—we aren’t tied to any particular market. We can shift our strategy, whereas most distributors or fabricators are regionalized. For example, when we face the economic effects of winter on the distribution business in the Midwest, we can shift to a more aggressive approach at our West Coast fabrication shop where the market remains stable. When the distribution market heats up in the spring, we can promote a less aggressive approach in our fabrication shops due to over-performance. We manage and shift our approach all the time, based on what we are seeing with our customer base throughout the country. The emerging trend in front of us is the recovery of the U.S. economy. We have been slowly improving for the past several years, but I expect that 2014 is the true perception adjustment in which the mindset is that we are truly on a recovery path. In most regions of the U.S, the residential market comeback is closer to 2005 levels. Investors have liquidity to invest and we are seeing it in the jobs that are on the books. MM