Steel bar demand dropped by an estimated 5% last year with no increase in demand expected in 2008. A merchant steel bar buyer in Ohio says that "business is down about 35% from this time a year ago," so he is one of the majority of bar buyers sourcing the same or less in the first quarter of this year than in the final stanza of 2007. And that's why economists see bar buying sliding by almost 7% this year.

Purchasing by the infrastructure and nonresidential construction industry remained somewhat stronger than the residential construction and metalworking markets for part of last year but overall bar use was erratic all year. Purchasing of light structurals and special quality bars was relatively healthy in 2007; in contrast, buying of stainless bar was flat with 2006 levels (which were 2% down from 2005 volume) and demand for merchant bar, alloy bar and reinforcing bar was low all year.

Production is close to recessionary in key merchant, special quality and stainless bar markets such as: machinery and equipment; automobiles and light trucks; heavy trucks and buses; major household and commercial appliances; and consumer durables. Steel rebar purchasing has been devastated by the collapse in residential construction and the recent softness in nonresidential building. A buyer for a construction company says "the national downturn in the homebuilding industry has loosened supply of materials and components."

Steel market economist John Anton at Global Insight, the Lexington, Mass.-based research house, says that while there is booming global demand for such items as aircraft engines and wind turbines, bar demand growth for other big-ticket capital-investment applications will be very low in 2008, adding that "the outlook is much weaker for consumer durables." He also suggests that "the special bar and merchant bar business will be held back until auto and appliance production picks up again"—probably in 2009.

So, while January prices for steel bars increased by about 2% because of higher scrap and energy costs, some analysts still are looking for three-month first quarter slippage of 1.5–2%. They point to the worse-than-expected readings on manufacturing activity, a decline in business spending and the continued collapse in new-housing activity. So, even though the steel mills are pressing forward with steep price increases on a range of steel bar products, views are mixed on whether the hikes will hold.

Several Nucor competitors—especially Commercial Metals and ArcelorMittal North America—say they have matched the mini-mill giant's February price increases of $60/ton for rebar, merchant bar and light structural products. These actions are based on the belief that a 2% increase in December shipments to service centers short on in-house stocks would translate into expanded first quarter buying by end users. Most economists now dismiss that notion.

"Consumption and investment have weakened (in key bar-using metalworking sectors) and even export growth, the remaining source of strength, has cooled," says Ken Goldstein, economist at the Conference Board private research group. "The latest data suggests that growth could remain slow, and possibly even be a little slower, in the first half of 2008."

Anton agrees that "the U.S. metalworking economy is headed for troubled waters," adding that bar prices may increase marginally though the first half of 2008 to offset rising costs of materials, "but demand is too weak to sustain large hikes." On the other hand, analyst Aldo Mazzaferro at Goldman Sachs Group in New York says early 2008 steel markets have been lit up with much more aggressive bidding by service centers, price increase announcements by mills, soaring scrap and energy prices and what believes will be successful price hikes.

Mike Harrowell, an analyst at Merrill Lynch & Co., says that extremely low levels of inventories and imports remaining relatively tame are the market fundamentals that support a thesis for sustained higher prices in 2008. However, steel service center bar stocks have bottomed out and are beginning to increase again, just as the rate of demand decline has accelerated.

Also, the recent mill price increases more than cover raw material costs and threatens to ruin potential purchasing stability, caution several North American steel users. However, buyers say the energy generation machinery business is barely stable, consumer end-markets are flat or slightly declining, business investment is showing cracks and durable goods orders have softened, even for capital equipment. Atop that, growth in nonresidential construction has paused. That's probably why the mill price announcements would put mill prices on rebar up to around $670/ton in February—but January steel prices were still well below $600.

Anton says prices for merchant bar and rebar will creep up again over the winter, but there is little upside room in the current soft economy. However, the big end-use markets of automotive and construction are so weak. So, it's not going to prop pricing because the weaker dollar is helping machinery export markets.

"Light-vehicle production will be the lowest since the Gulf War recession of the early 1990s, and there will not be a recovery until 2011," says Anton. "The downturn in autos is a problem for fasteners, forgers, and parts makers; thus, special bar will continue to see softer demand from this key market in 2007. Parts makers are suffering deeply enough that there is a danger of capacity permanently closing."

Several market analyses show that special bar demand is strong from makers of commercial jetliners and private jets and the producers of military equipment used in the Iraq war that has to be replaced. And that's why special bar has long been one of the highest priced of all carbon products. However, it is slowly declining and will continue to do so (sporadically) through 2008. Special-bar capacity may be oversupplied for current demand levels. That's why it's priced just about at its historical premium over merchant bar. The traditional premium for special bar quality (SBQ) grade 1018 over merchant bar has been in a range $150–$200/ton; in 2007, it was $195.