The number of active oil and natural gas rigs in the United States fell 0.3% to 1,966 for the week ending June 22, 2012, the second consecutive weekly drop and a seven-week low.  Despite the decline, the rig count is up 4.5% from the year-ago level of 1,882.

The highest weekly rig count in the United States since 1940 was recorded on December 28, 1981, at 4,530; the lowest was recorded on April 23, 1999, at 488.

The number of rigs in Canada declined 4.0% this week to 238, down ten rigs from last week.  The rig count is also down 4.8% from the year-ago level of 250.

The highest rig count for Canada was 727 on February 3, 2006; the lowest was 29, recorded on April 24, 1992.

Source: Baker Hughes Inc.

The spot reference price for 62% Fe iron ore cfr North China rose some 1.8% this week to $137.40 on Friday, June 22, 2012, from $135.00 last week.  The price has risen for eleven consecutive days and is now at the highest level since May 11, 2012.

The post-recession low was $59.10 on March 27, 2009, while the high was $190.19 on February 17, 2011.

Source: The Steel Index

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According to Bloomberg, Posco has said they are talking to Vale about reverting back to annual iron ore contracts.  We have believed that this was going to happen for awhile now, so we suspect this will be happening in the near future.

Historically annual contracts have worked better for buyers than sellers for a number of reasons.

Our full report is available to subscribers only and provides further details regarding the implications for both steel mills and iron ore miners, as well as the impact on equities.

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Steel Market Production Increases – ArcelorMittal has restarted its heavy plate mill number 1 at its steelworks in Galati, Romania which together with  mill number 2 has an annual production capacity of 1 million tpy.

Steel Market Production Cuts – ArcelorMittal has confirmed that it intends to extend the summer shutdowns at its rod and bar mills in Zumarraga Spain and Gandrange, France for 3 weeks in the next two months and 4 weeks in August respectively – which along with output reductions at mills in Duisburg and Hamburg, Germany will result in a reduction of 125,000 tonnes of bar and wire rod output in 3Q12.

Steel Market Production Increases – Korea’s Dongkuk Steel Mill began hot trials on its new 1.2 million tpy high speed rebar rolling mill at its Incheon works.

Steel Market Production Cuts – Korea’s Dongkuk Steel Mill plans to stop production on its 650,000 tpy rebar mill at its Incheon works once its new high speed mill’s operations stabilize in September or thereafter.

Steel Market Production Cuts – The Chinese province of Jilan plans to eliminate 302,800 tpy of annual crude steel-making capacity in 2012 according to a government release.

Steel Market Production Increases – Welded pipe production began on June 18 for the first phase of Chinese steelmaker Fuyang Xinwan Metal Products new operation with an initial production capacity of 70,000 tpy.

Sources: Steel Business Briefing, SteelOrbis

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The American Institute of Architects’ (AIA) ABI Index – a leading economic indicator of non-residential construction activity 9-12 months into the future – posted a steep monthly drop of 2.6 points in May, coming in at 45.8, the lowest level since early 2010.  The index has now fallen some 5.3 points since the recent peak in February, as business confidence continues to deteriorate amid the ongoing Euro-zone debt crisis and the economic slowdown in China.

The new project inquiry index fell only nominally from 54.4 to 54.0 – the lowest level in a year – and while a reading above 50 indicates growth, we maintain our cautious approach in assessing the inquiry index, as the AIA does not adjust for multiple bids.

The overall report was dismal, with all eight sub-indices declining from April, and only one coming in above 50.

Our full report is available to subscribers and provides further thoughts on the May ABI Index as well as the impact on steel equities.

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Steel Market Production Cuts – Spanish producer Celsa plans to close Laminaciones Arregui – its welded tubes line and strip re-rolling mill in northern, Spain with an annual production capacity of 300,000 tpy of flat products after negotiations with unions failed.

Steel Market Production Cuts – Italian seamless tube producer Tenaris Dalmine plans to close its 150,000 tpy small tube rolling mill in Fapi, Italy.

Steel Market Production Cuts – Hungarian flat steel producer ISD Dunaferr plans to temporarily idle its 170,000 tpy capacity hot rolling mill from the end of July to early August to reduce output and carry out maintenance.

Steel Market Production Increases – Chinese welded pipe maker Jiangsu Tongyu Steel Pipe Group began construction on a new 50,000 tpy capacity spiral submerged arc welded (SSAW) pipe plant on June 15 with production scheduled to begin March 2013.

Sources: Steel Business Briefing

May global steel production declined 1.8% from April’s all-time high of 4.29 million tonnes per day (mtpd), marking the first drop in five months and breaking from the typical sideways trend in the month.  Global capacity utilization also declined to 79.6%, after hitting a 10-month high of 81.3% in April.

What is disconcerting to us, is that despite the relative strength we are seeing in the US steel market this year, steel production is nearly 13% below the pre-recession peak in 2008 due in part to a 31% surge in imports year-to-date, as overproduction in China has led to a 23% increase in net exports so far this year.

Chinese steel production for the first 10 days of June reversed the recent downtrend we had seen since peaking in early May, rising some 2.0% from 1.96 mtpd in late May to 2.0 mtpd, the equivalent of 732 mt on an annualized basis, which is 7% above prior full-year peak production.

Our full report is available to subscribers only and provides further thoughts on global steel production and pricing and the implications for steel equities.  

Steel Market Production Cuts – Korean producer Posco plans to carry out maintenance from July 2-9 at its Pohang plants.

Steel Market Production Cuts – Korean producer Hyundai Steel plans to carry out maintenance at its Dangjin works for five to seven days in late July.

Steel Market Production Cuts – Taiwan producer China Steel Corp plans to reduce capacity for 6 months to a year on its No. 3 blast furnace for maintenance in the latter part of 2012.

Steel Market Production Increases – Taiwan producer China Steel Corp has delayed maintenance on its No. 4 blast furnace at Kaohsiung works in southern Taiwan from 4Q12 to 2 or 3Q14.

Sources: Steel Business Briefing

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Our Advance/Decliner Index was relatively stable last week, falling to 17% from 18%, as notable pricing weakness in the US and MENA led to our Ex-China Index dropping from 20% to a three-week low of 12% (any reading below 50 means more price cuts were reported than increases).

Pricing in Europe remained a bright spot however, with our sub-index coming in above 50 for the second straight week, as European steelmakers have been aggressively cutting production.

Our China Index rose from 10% to an eight-week high of 31% following attempts by some Chinese steelmakers to raise steel prices last week for billet, rebar, wire rod, energy pipe and plate, most likely spurred by rising iron ore prices during the week.

Our full report provides further thoughts about global steel pricing trends and our outlook as well as implications for steel equities.

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