The seasonally adjusted value of new U.S. construction starts dropped 2%, from almost $410.5 billion in December 2011 to about $402.2 billion in January 2012, according to figures from McGraw-Hill Construction. This included a 1% drop in the value of non-residential building starts, which fell from about $140.9 billion to $139.8 billion, an 8% decline in the value of residential building starts, which dropped from about $145.4 billion to almost $134.5 billion, and a 3% jump in non-building construction, which rose from $124.2 billion to $127.9 billion.

Dodge Index Falls

In January 2012, the Dodge Index totaled 85 (2000=100), compared to the December 2011 reading of 87. During the course of 2011, the Dodge Index moved within the range of 81 to 101, with the average for last year coming in at 90.

Unadjusted Year-to-Date Start Values Drop 14%

On an unadjusted year-to-date basis, the total value of new construction starts fell 14%, from roughly $31.3 billion in January 2011 to $27 billion in January 2012. This figure included a 16% drop in the value of nonresidential building construction starts, which went from $11.1 billion to $9.3 billion, as well as a 17% hike in the value of residential building construction starts, which rose from $7.5 billion to $8.7 billion, and a 30% plummet in the value of nonbuilding construction starts, which fell from $12.7 billion to $8.9 billion.

Source: McGraw-Hill Construction

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The American Institute of Architects’ ABI Index – a leading economic indicator of non-residential construction activity 9-12 months into the future – remained above 50 in January, coming in at 50.9, virtually unchanged from 51 in December, and the first three-month string of readings above 50 since last spring. The reading above 50 means the number of architects reporting “rising billings” outpaced the number reporting “declining billings.”

The new project inquiry index was relatively stable at 61.2, down nominally from 61.5 at fairly elevated levels. While in the recent past, we have been somewhat cautious about putting too much weight on the new inquiries index because it does not account for rebidding, and the index has remained above 50 consistently since January 2009, and there was clearly no predictive value in calling an upturn. We would note though that the new inquiries index has been much higher the past two months than during the first 10 months of the year when it ranged from 52.6 to 58.7 and the significantly higher readings have in fact coincided with a higher overall ABI reading.

The number of active oil and natural gas rigs in the United States rose 0.3% to 1,994 for the week ending February 17, 2012, and is up 16.4% from year-ago levels.

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 this week decreased 0.6% from 709 last week to 705, but was 10.9% higher than last year.

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.

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Chinese Vice Commerce Minister Zhong Shan was quoted by China Daily promising increases of export tax rebates, “at an appropriate time,” something Beijing has not done since 2009.

The government said that “labor intensive” sectors would benefit, without providing specifics, but we believe there may be some risk that this could include steel, given the sector’s prior history of export tax rebates to facilitate exports.

Our new report provides our thoughts on the near-term and longer-term impact of this news.

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Good news for the global steel industry in weak January production, which rose a scant 0.9% from December, far less than the typical seasonal uptick of 2.5%. The data may have been skewed to the negative as China’s Golden Week holidays fell earlier than usual, and in fact the China Iron & Steel Association’s production “flash” report for the first 10 days of February showed that output rose 1.9% from late January levels, although this is still nearly 15% below peak levels seen in June 2011, as Chinese steel demand has yet to recover to normal levels following the Golden Week holidays.

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Metalforming companies predict a spike in business conditions during the next three months, according to the latest monthly 2012 Precision Metalforming Association (PMA) Business Conditions Report. The February edition of the report, which samples 138 metalforming companies in the US and Canada, indicates 51% of participants expect metalforming economic activity to improve during the next three months. This figure is up roughly 25% from 41% who held a positive outlook in January.

Meanwhile, 45% of participants predict that metalforming activity will remain unchanged, down roughly 9% from 54% in January, and only 4% predict activity will decline, a 20% drop from 5% the prior month.

Incoming Order Improvement also Expected

Metalforming companies also anticipate a slight improvement in incoming orders during the next three months, with 56% of participants forecasting an increase in orders, (up roughly 10% from 51% in January. In addition, 33% expect no change, down about 17% from 40% last month, although 11% predict a decrease in orders, up about 22% from 9% the prior month.

Average Daily Shipping Levels Rise

Average daily shipping levels rose significantly in February with 45% of participants reporting shipping levels above levels of three months ago, up 50% from 30% in January. There was a slight decrease in the number of participants reporting shipping levels remaining flat from three months ago,dropping dropping about 6% from 48% to 45%, and a dramatic decline in the number  reporting a decrease, which fell about 54%, from 22% in January to 10%.

Layoffs Fall Off

The percentage of metalforming companies with a portion of their workforce on short time or layoff dropped to 7% in February, down about 42% from 12% in January.  This number has not been at this level since December 2006, the last time only 7% of companies reported workers on short time or layoff.

Source: Precision Metalforming Association

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SSAB reported an adjusted loss of SEK 220m, well short of the Street’s forecast of SEK 338m and 3Q EBIT of SEK 502m.  Management attributed weak 4Q results to continued weakness in Europe, marked by inventory destocking by customers, partly offset by relatively strong performance in the Americas.

Guidance was fairly limited although management said signs of a recovery, including restocking, are apparent in the U.S. and SSAB expects plate prices in North America to increase sequentially, as several plate producers have announced 1Q increases.  Declining steel prices in most parts of the world in 4Q will have a negative impact on the company’s 1Q contract prices and results, while lower iron ore prices renegotiated for 1Q delivery would not benefit SSAB’s results until 2Q.

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Summary – Report Preview

BHP reported underlying EBIT of $15.7B for the six months ended December 31, 2011, up 5.8% from $14.8B recorded in the comparable year-ago period, as revenues rose 9.7% to $37.5B, compared with $31.2B.

The company said that record Western Australia Iron Ore production and stronger bulk commodity and petroleum product prices were the major drivers of the increase in underlying EBIT. Cost pressures continued, as costs reduced underlying EBIT by $1.6 billion during the period, excluding the impact of inflation, exchange rate volatility and non-cash items. Substantial increases in labor and contractor costs accounted for the majority of the increase in cost.

In its outlook, BHP said that Japan and the US, after seeing some uptick in economic activity in the second half of 2011, will see a protracted recovery along with the rest of the developed world, while the disorderly unwinding of European government debt remains one of the key downside risks. In China, the world’s largest importer of iron ore, economic growth rates will moderate, though the long-term outlook remains positive.