Steel Market Production Cuts – ArcelorMittal no longer intends to restart production on the two idled blast furnaces at its steelworks in Florange, France this year citing weak market conditions and what is generally a seasonally weaker 4^th quarter.

Steel Market Production Cuts – Turkish long steel producers have begun cutting back production in the face of lower prices with three producers having already begun cutting back production by 20% and others reportedly considering cuts.

Steel Market Production Cuts – Chinese producers Tangshan and Shougang reportedly have plans to do routine maintenance at their hot strip mills in June with an expected total loss of 40-50,000 tonnes of HRC production at each of the mills.

Steel Market Production Cuts – Latin American steel producer Ternium has had construction on its new slab mill in Açu Port stopped by Brazilian public prosecuters who allege irregularities in the mill’s licensing process.

Sources: Steel Business Briefing, American Metal Market

The number of active oil and natural gas rigs in the United States fell 0.2% to 1,980 for the week ending June 1, 2012, the second consecutive decline after reaching an eleven-week high of 1,986.  However, the rig count is up 6.8% from the year-ago level of 1,854.

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 dropped 1.3% to 156 this week, down from 158 last week.  The rig count is also down 15.2% from the year-ago level of 184.

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

We think by now it is painstakingly clear that June prices for both shredded and prime scrap are going to decline, the only question is how much.

At this point in time, we expect prices for both grades to drop by at least $20-40/ton with prime likely showing a smaller drop than shredded, as the prime market is less influenced by the export market which has weakened substantially.

Our full report provides our outlook for steel prices by product as well as the implications for steel equities.

For a free trial subscription, please contact Jasmine.

The spot reference price for 62% Fe iron ore cfr North China rose some 3.4% this week to $135.00 on Friday, June 1, 2012, ending a six-week downward trend and some 3.9% above the six-month low of $129.90 seen on May 23.  The price is still down some 9.6% from the recent peak of $149.40 on April 13 however.

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

Steel Market Production Increases – Republic Steel has broken ground today on a new 1.2 million tpy capacity EAF in Lorain Ohio. The additional capacity will be used to produce SBQ and is scheduled to come online in 2Q13.

Steel Market Production Cuts – Henan Province in China has announced planned crude steel capacity elimination targets of 1.3 million tpy for 2012.

Steel Market Production Increases – China’s Jiangsu Tianhuai Steel Pipe commissioned a 500,000 tpy high grade seamless pipe mill on May 28.

Steel Market Production Cuts – The Chinese province of Fujian has announced annual production capacity elimination targets of 180,000 tpy of crude steel for this year.

Sources: Steel Business Briefing, SteelGuru, PR Newswire, MySteel

RG Steel filed for Ch. 11 bankruptcy protection earlier this morning, and we want to step back and contemplate how the RG Steel failure came about and the impact on the entire sector.

First, credit should be given the men and women of the USW who sacrificed wages to restart this plant, and the private equity folks at Renco and Cereberus who provided the lifeline a year ago.

But the failures that caused this event include:

1. Failed trade policy

- higher cost imported steel surged this year, to a market share of 30%; domestic steel production is still down 10% from pre-recession levels, while Chinese production is up 50%, and global production is up nearly 8% from pre-recession levels. We are the lowest cost producer of steel to the domestic market, and not a ton of the global steel that’s coming into this country could compete on a level playing field.

2. Failed anti-trust policy

- the reason the Sparrows Point piece of RG Steel has changed hands and done the start-stop over and over again all these years was the Justice Department’s mandate that ArcelorMittal sell this facility a half-dozen years ago – in order to “protect” the tin mill buyers from overconcentration. If Justice had allowed Mittal to retain ownership, the Sparrows Point piece of this would have thrived under that ownership, much as other previously bankrupt or near bankrupt facilities – like Bethlehem’s Burns Harbor plant, or National Steel’s Granite City Works or Birmingham Steel’s many facilities have all thrived under new owners, ArcelorMittal, US Steel and Nucor – consolidation works!

3. Failed industrial policy

- private equity – which the administration is demonizing as a campaign strategy – provided the only lifeline for this massive employer.

In terms of steel market impact, we see very little impact from this bankruptcy – a Ch. 11 filing provides protection from creditors and allows companies to operate more easily, as debtor-in-possession financing – new loans granted during Ch 11 – takes precedence in a bankruptcy over existing debt.

Typically Ch. 11 enhances cash flow, minimizes prior existing obligations and allows companies breathing room to operate during a reorganization, so we do not see any benefit to RG Steel’s competitors in the short run.

For a free trial subscription, please contact Jasmine.

New Report Preview

According to data from Pipe Logix, May OCTG prices fell 1.4% to $1,887/ton, outpacing last month’s nominal 0.1% decline, as prices for seamless and electric-resistance welded (ERW) pipe decreased by 1.2% and 1.7%, respectively.  The drop was the biggest decline since December 2010, as some 32 out of the 39 individual products were down for the month.

While drilling activity remains robust, the 40% year-to-date rise in OCTG imports is more than offsetting rising demand.  In fact, import market share was 60% for the four months of the year, nearly as high as it was before the landmark Chinese trade case was filed in April 2009. Chinese imports have largely been replaced now with tonnage from Korea, where imports have grown some 167%.

Our full report is available to subscribers and provides further thoughts on OCTG pricing and margins as well as the implications for shares of OCTG producers.

For a free trial subscription, please contact us.

Steel Market Production Cuts – China’s Henan province has set targets for the elimination of 1.3 million tpy of outdated steelmaking capacity in 2012.

Steel Market Production Increases – Japanese producer Nippon Steel has blown-in the No.2 blast furnace at its Kimitsu works following a reline. The inner volume has been expanded to 4,500 cubic meters from 3272 with crude steel capacity to grow by 700,000 tpy.

Steel Market Production Increases – Korean producer Posco has inaugurated its new 450,000 tpy hot dipped galvanized and galvannealed auto sheet plant in India with operations at full capacity having begun on May 28^th.

Steel Market Production Increases – Chinese producer Bagang, a subsidiary of Baosteel, has commissioned a 400,000 tpy ERW pipe mill in northwest China this month.

Steel Market Production Increases – Chinese welded pipe maker Jiangsu Yulong expects their new 170,000 tpy ERW pipe mill to be online by the end of this year.

Steel Market Production Increases – Azerbijan’s billet and rebar producer Baku has begun construction on two rolling mills with a combined capacity of 180,000 tpy to be commissioned in December 2012 and the first half of 2013.

Sources: Steel Business Briefing, SteelOrbis

Weekly domestic raw steel production declined 0.8% to 1.961 million tons (mt) for the week ending May 26, 2012, falling for the second consecutive week from the post-recession high of 2.005 (mt).  Despite the downturn, production is up 8.9% 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 this week, dropping from 80.0% last week to 79.4%, but was higher than the year-ago level of 73.7%.  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