In an environment of global overcapacity, Chinese steelmakers have been last to reduce production, continuing to make steel at a breakneck pace despite a slowing economy. As a result Chinese steel prices have plunged 13% in the past three months, while exports have risen 31%.

Finally last Thursday, Beijing broke its silence saying that steelmakers need to “curb production and eliminate backwards capacity due to structural problems and retreating market demand.” Tonight the other shoe has dropped, as Beijing is now leaking to the Chinese press that they are “reviewing” increasing export tax rebates on steel, for the first time since… more.

Our full report is available to subscribers only and provides further thoughts on Beijing’s recent steel industry involvement as well as the potential impact and the implications for steel equities.

For a copy of our report and a free trial subscription, please contact us.

The spot reference price for 62% Fe iron ore cfr North China fell some 7.0% to $116.20 for the week ending July 27, 2012, from $125.00 last week. This marks the third consecutive weekly decline and the lowest price since the week ending December 18, 2009.

For the first quarter of 2012, the iron ore price averaged $141.84, and for 2Q, $139.35; this compares to an average of $176.90 for 1H 2011 and $167.59 for full-year 2011. 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

Weekly domestic raw steel production for the week ending July 28, 2012, rose 0.5% to 1.846 million tons (mt) from 1.837 last week and down some 0.6% year-on-year.

We would caution readers that only half of the AISI reporting companies release their weekly production in “real time” so the other half of this data is estimated – using prior months’ reported production & operating rate. What this means is that when the operating rate is rising as it is right now, the weekly data is actually understating the increase.

Capacity utilization also rose from 74.3% last week to 74.7% this week, slightly below the year-ago level of 76.0%.

The lowest production level since the recession began was 800,000 tons for the week of December 27, 2008. The highest level since the recession began was 2.005 mt for the week of May 12, 2012. The lowest capacity utilization rate since the recession began was 33.5% for the week of December 27, 2008; the highest was 81.1% on May 12, 2012.

Source: AISI and Steel Market Intelligence

Steel Market Production Cuts – Chinese steelmaker Shagang has scheduled 20 days of maintenance on a blast furnace which will result in a total output reduction of 150,ooo tonnes.

Steel Market Production Cuts – Chinese steelmaker Taiyuan Iron and Steel plans to idle a blast furnace for 20-23 days for a total output reduction of 100,000-110,000 tonnes of lost output.

Steel Market Production Cuts – Chinese steelmaker Nangang has idled a small 40-50,000 tpm blast furnace starting July 25^th with no restart date given.

Steel Market Production Increases – Gerdau Special Steel North America announced that it launched the second phase of its special bar quality (SBQ) expansion at itsMonroe,Michiganlocation with the intent of increasing capacity to 800,000 tpy by 2Q13.

Steel Market Production Cuts – Italian steelmaker Riva Group’s Ilva integrated mill, the largest inItaly, is reportedly facing a potential closure over legal documents filed this week regarding pollution from the 11 million tpy capacity mill.

Steel Market Production Cuts – Swedish Steelmaker SSAB plans to halt production at its operations for three weeks over the summer months which will result in the loss of 120-150,000 tonnes of strip products and 30-40,000 tonnes of plate.

Steel Market Production Cuts – Argentinean producer Acindar plans to reduce wire rod output over an initial period of 5 months due to depressed domestic demand.

Steel Market Production Increases – Turkish steelmaker Tosyali Holding is currently gradually restarting its Montenegrin special steel and bar producer Zeljezara Niksic’s EAF with its hot rolling mills scheduled for a restart next week.

Sources: Steel Business Briefing, Gerdau Press Release 

The number of active oil and natural gas rigs in theUnited Statesfell 0.6% to 1,924 for the week ending July 27, 2012, down from 1,935 last week and the lowest since August 5, 2011.  The rig count is now a scant 0.8% above the year-ago level.

The highest weekly rig count in the United Statessince 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 rose again this week by 3.1% to 338 compared with 328 last week and is the highest count since March 23, 2012.  Despite the increase, the Canadian rig count is down 14.4% from the year-ago level.

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.

New Report Preview:

AK Steel announced a widely-anticipated second $40/ton sheet price hike earlier today; we expect peers to… more.

Our full report, which is available to subscribers only, provides further thoughts about domestic and global steel prices as well as the implication for steel equities.

For a copy of our report and a free trial subscription, please contact us.

Steel Market Production Increases – French pipemaker Vallourec reportedly plans to roll its first seamless pipe this fall at its new 500,000 tpy capacity Youngstown seamless pipe works after having successfully pierced its first billet at the end of June.

Steel Market Production Cuts – Zhu Hongren, a chief engineer at China’s Ministry of Industry and Information Technology (MIIT) confronted China’s problems with overproduction by stating that over the next five years the Ministry will halt excessive capacity expansion, offer support to backwards capacity reductions and slash the number of steelmakers through support of M&A.

Steel Market Production Cuts – ArcelorMittal’s CEO Lakshmi Mittal refused to rule out new European production cuts in the company’s 2Q12 conference call and went on to say that its integrated mill in Florange will remain idled until next year and that its blast furnaces in Gijon, Spain and Dunkirk, France will be down for maintenance during Q3.

Steel Market Production Cuts – German steelmaker ThyssenKrupp’s Steel Europe plans to introduce short-time working hours at its locations in Duisburg-Hamborn, Duisburg-Hüttenheim,Bochum,Dortmundand Siegerland with their Finnentrop location initially excluded.

Steel Market Production Increases – Russian steelmaker NLMK has announced the successful commissioning of its new 3.4 million tpy Blast Furnace No. 7 at itsLipetsksite which along with a new basic oxygen furnace (BOF) will increase crude steel output by 36% to 12.4 million tpy.

Steel Market Production Increases – Egyptian mill Taybah Steel is reportedly hopeful that it will receive a power allocation from the Egyptian government for its new 450,000 tpy capacity electric arc furnace billet plant by the end of the year.

Steel Market Production Increases – Armenian steel producer ASCE Group OJSC has ordered a new 200,000 tpy capacity billet mill from Austrian plantmaker Siemens VAI Metals Technologies that is scheduled for completion in mid-2013.

Sources: Steel Business Briefing, Bloomberg, MetalBulletin, SteelOrbis, SteelGuru, Vallourec Corporate Website, NLMK Press Release

Steel Market Production Cuts – Chinese steelmaker Liuzhou Steel plans to suspend its blast furnace in Guangxi province for 45-50 days for a total loss of 200,000 tonnes of hot metal and to halt HRC, bar and wire rod lines for 15 days starting July 24th with a total output loss of 120,000 -140,000 tonnes of HRC.

Steel Market Production Cuts – Chinese steelmaker Hebei Wu’an Xianjin plans to halt production on a blast furnace for a 3-month overhaul with a total loss of 180,000 – 200,000 tonnes of crude steel over the period.

Steel Market Production Cuts – Chinese steelmaker Taiyuan Steel will be conducting maintenance on one of its HRC lines for 20 days starting in early August with a total output loss of 80,000 tonnes.

Steel Market Production Cuts – Chinese steelmaker Jinan Steel began 5-day maintenance on its HRC line on July 24^th with a total output loss of 25,000 tonnes expected.

Steel Market Production Cuts – Chinese steelmaker Anshan Steel reportedly plans to conduct maintenance on their cold-rolled and HRC lines for 8-10 days in late July.

Steel Market Production Cuts – ArcelorMittal Piombino will idle its Italian operations for the whole month of August and reportedly plans to halve its workforce in September.

Steel Market Production Cuts – Chilean steelmaker CAP Acero has ceased production of cold rolled coils (CRC) at its 100,000 tpy capacity plant in Talcahuano, Chile with production scheduled to resume at the end of the year or or early 2013 according to some sources.

Steel Market Production Cuts – Spanish steelmaker Alfonso Gallardo group’s Corrugados Azpeiia mill in northern Spain has reportedly been idled since mid-June due to a strike despite the company having targeted output at 350,00o tpy during the strike.

Steel Market Production Cuts – Japanese steelmaker Kyoi Steel plans to stop steelmaking and rolling operations for 20 or 21 days this summer.

Sources: Steel Business Briefing, Bloomberg, MetalBulletin, SteelOrbis, SteelGuru

New Report Preview:

Our Advance/Decliner did a dead-cat bounce this week, posting a small increase, driven by an uptick in our Ex-China Index, as our China Index plunged following a sharp drop in iron ore prices… more

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

For a copy of our report and a free trial subscription, please contact us.

New Report Preview:

June steel imports declined to 2.59 million tons to the lowest level so far this year, as declining domestic prices narrowed the pricing gap with foreign steel making it less attractively priced… more

Our full report is available to subscribers only and provides further details on June imports as well as our outlook for the coming months and implications for steel equities.

For a copy of this report and a free trial subscription please contact us.