It’s that time of the quarter again when I get a chance to take a step back, gather my thoughts and scour through the data as I write the metals category article for SupplyWatch. As you can guess…there’s a LOT to talk about this quarter. Plummeting commodity prices, a global credit crisis and an underlying question of where the bottom is and when we’ll reach it.

One of the big, yet under-reported factors in all of this is the value of the USD. The chart below shows the value of the USD vs the Euro this year.

As we’ve discussed before, a weak dollar cripples US companies on imports and that’s had a major impact on the ability of US companies to purchase goods, such as steel, from abroad. So, the Euro losing 13% of its value over the last 5 months is a welcome trend for American steel buyers.

It seems logical to believe that a relative gain in the dollar’s value would result in a rise in imports, right?

Not necessarily.

There are still some powerful headwinds keeping US companies from exercising their purchasing power. First off, you have dropping demand. In the midst of what could be a deep and/or long recession, consumer demand for goods and construction is very weak. Couple that relatively weak demand with plummeting prices for domestic scrap and there’s even less of an impetus to import.

A second limiting factor is patience on the part of distributors, who are waiting until prices hit bottom before they commit to purchases from abroad. My early guess at this point is that prices will continue to slide downward until late in Q1 of 2009, but their rate of decline in the near future will likely be slower than it is now. So from a buying standpoint, if you have the demand and credit you can certainly find the supply provided the mills and raw material suppliers do not drastically cut production much lower than they already have to date.

Mike Petro is the Senior Category Manager for Metals in Ariba’s Global Services Organization. Previously, Mike analyzed supply chain options and competitive pricing for US Steel and Timken Latrobe Steel.