The number of active oil and natural gas rigs in the United States rose 0.2% to 1,984 for the week ending June 8, 2012, climbing close to last month’s peak of 1,986.  The rig count is also up 7.0% from the year-ago level of 1,855.

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 increased 47.4% this week, jumping from 156 last week to 230 this week.  Despite the increase, the rig count is down 0.9% from the year-ago level of 232.

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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According to just-published data from American Metal Market (AMM), June prices for shredded scrap (obsolete) tumbled $58 (or 13.5%) to $372/ton, and #1 busheling (prime) scrap plunged $65 (or 14.6%) to $380/ton.

The sharp declines were the largest one month drops for both grades since November 2008, and put prime scrap at the lowest level since December 2009 and shredded at the lowest since November 2010.  Since peaking in January of this year, prices of prime and obsolete scrap have dropped $140/ton (or 26.9%) and $98/ton (or 20.9%), respectively.

We believe the decline for shredded scrap was driven by the evaporation of the export market for obsolete scrap, lower iron ore prices as well as the general slowdown we are seeing in steel demand and production.  While prime scrap is more insulated from the global market, a step-up in supply due to increased manufacturing and a decline in demand due to weaker sheet markets drove the steep pricing decline in the month.

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Steel Market Production Increases – Indian pipemaker Welspun has completed the 80,000 tpy helical submerged arc welded (HSAW) capacity expansion at its Saudi Arabian mill – bringing the mill’s total capacity to 350,000 tpy.

Sources: Steel Business Briefing

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According to American Metal Market, Gerdau (GGB) has announced a surprise $15/ton price cut for all longs, likely responding to sidelined buyers who are waiting for scrap prices to settle. We believe that pricing leader Nucor (NUE) will likely follow with a similar move – down $10-20-ton – as it appears that shredded looks to be settling down $50-60/ton.

We believe that Nucor will raise the base price to offset most of the surcharge decline in order to minimize pricing volatility and to respond to somewhat healthier markets as long product imports likely dropped in May and early June.

Our full report provides further thoughts about domestic and global steel prices as well as the implication for steel equities.

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Steel Market Production Increases – Electrical grid maintenance in Qian’an city in Tangshan, China has caused power shortages to some billet makers with power restrictions having begun on June 1 and scheduled to run until June 13.

Steel Market Production Increases – Chinese linepipe maker Chu Kong has started hot trials on its new 360,000 tpy spiral submerged arc weld (SSAW) pipe mill in Lianyungang city in Eastern China.

Steel Market Production Increases – Chinese linepipe maker Chu Kong intends to inaugurate a new 300,000 tpy COE-formed longitudinal submerged arc welded (LSAW) pipe mill in its Lianyungang works in the fourth quarter of 2012.

Steel Market Production Increases – Isa Unal, the owner of Turkish conglomerate Moher Limited was granted a license to construct a 250,000 tpy rebar mill in Basra, Iraq with construction completion scheduled for the end of 2013.

Sources: Steel Business Briefing

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Our Advance/Decliner Index rose from a 3-year low of 4% to 23% as our Chinese Index posted a short-lived rebound rising from zero to 25% as announced stimulus as well as a pathetic 0.3% production drop boosted some spot prices early in the week before the rally fizzled out by week’s end (any reading below 50 means more price cuts were reported than increases).

So far this week, spot steel prices in China have already given back these gains due to a combination of a disappointing US jobs report, weak Chinese manufacturing data and the continuation of strict Chinese property market controls, and steelmakers have continued to cut export prices.

Our Ex-China Index also increased from 5% to 23% as Brazilian steelmakers took advantage of the strengthening dollar/real relationship and announced price hikes in an attempt to re-establish more “normal” domestic price premiums, while pricing elsewhere continued to fall.

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HRC lead times for the week ending 5/27 slipped to 2 weeks from 3.8 in the previous week. These levels represent the lowest since the start of the year with some sources even quoting lead times below these levels.

Lead times for HDG remained unchanged at last week’s level of 5.3 weeks – also a low for the year, while CRC slipped to 5.6 from 6.2 last week – just 0.2 weeks off this year’s low of 5.4.

Sources: The Steel Index, Steel Business Briefing

Steel Market Production Cuts – ­China’s Yunnan Province has announced that it is targeting the elimination of 500,000 tonnes of annual steel production capacity in 2012.

Sources: SteelOrbis

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According to the Steel Import Monitoring and Analysis (SIMA) licensing program, May steel import licenses declined 10.4% to 2.63 million tonnes (mt) from April’s 2.93 mt.  The overall decline was driven by weakness in the sheet market, as sheet imports dropped 18.8% from a multi-year high in April in tandem with a 16.3% decrease in semi-finished licenses as domestic mills slowed purchases of slab to roll into sheet.

Chinese steel imports into the US in May bucked the overall trend and are poised to potentially reach the highest level since the spring of 2009 (just before the huge Chinese oil pipe case was filed) as a doubling in hot-rolled bar imports was only partially offset by fewer licenses of hot-dipped galvanized, cold-rolled sheet and wire rod.

Our full report is available to subscribers and provides further thoughts on May import licenses as well as our outlook for the coming months and implications for steel equities.

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Weekly domestic raw steel production dropped some 2.1% to 1.920 million tons (mt) for the week ending June 2, 2012, falling for the third consecutive week from the post-recession high of 2.005 (mt) to the lowest level since January.  Despite the downturn, production is up some 4.9% compared to the year-ago level.  The lowest production level since the recession began was 800,000 for the week of December 27, 2008.

The capacity utilization rate also fell from 79.4% last week to 77.7% this week, but was higher than the year-ago level of 74.8%.  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.

Note: AISI weekly production data only includes real-time input from 50% of producing members; the remainder of the data is a guesstimate based on each company’s prior-month production and therefore the weekly AISI data lags when there are production cuts or increases going on.

Source: AISI and Steel Market Intelligence