So where do we see wire pricing for the rest of Q3 and Q4, 2022? From all indications, the wire market is softening.
For our domestic wire mills, including NAFTA mills (Canada and Mexico) we expect about a 5% drop towards the end of Q3 and about another 5% drop or 10% cumulative towards the end of Q4. The domestic/NAFTA market has seen about a 20% cumulative drop YTD. For Western Steel & Wire, our domestic/NAFTA wire includes Medium to Hard Galvanized, Bright Basic of various grades and Stainless-Steel Spring and Stainless-Steel Annealed. The majority of all domestic wire is EAF wire. https://allentimmons.com/2021/12/03/bof-vs-eaf-steelmaking/
For our S. Korean wire mills, Western Steel & Wire has strategic agreements that Q3 pricing will remain the same as Q2 pricing. We expect we can continue these agreements to hold pricing the same for Q4. For Western Steel & Wire, our S. Korean wire includes Music Wire, Galvanized Annealed (Soft), Black Annealed, OTMB and OTCS. The S. Korean mills are the producers of our BOF wire.
One of the significant cost drivers for our import wire has been ocean freight. Pricing has dropped slightly but not to pre-pandemic pricing. Companies are still competing for ocean freight capacity affecting pricing and lead time. At the seaports, congestion is still high, but we are seeing relief. Ocean freight capacity and port congestion have been the significant causes for longer and sometimes unpredictable lead times.
Of course, the main reasons for this pricing reduction/stabilization can always be attributed to supply and demand. Demand is now lower due to many customers over ordering at the beginning of the year to fill empty shelves caused by material shortages due to the pandemic. As these shelves become full or the pipeline is filling up, demand is lower. Meanwhile, the mills continue to ramp up and produce, thereby increasing supply. Because of this lower customer demand, we expect potential layoffs to occur at some of our mills, but this should result in further price stabilization.
As a caveat, the wire market has been very unpredictable in recent times; issues such as production capacity issues, rod shortages, delays in transportation, world events (Russian-Ukraine war), inflation, can nullify any type of forecast.