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While the Chinese steel market rallied early this week in response to Beijing’s announcement of stimulus measures and a 0.3% decline in production, our Advance/Decliner Index sunk from 16% to just 4% last week as overproduction from China combined with a global economic slowdown and declining raw material prices resulted in steel pricing weakness across the globe (any reading below 50 means more price cuts were reported than increases).

Our China Index remained at zero for the fourth consecutive week – just the third time in history this has ever occurred – as steel prices continued to decline despite Beijing’s attempts to soothe economic worries with pro-growth promises.

East Asia was also very weak, and pricing in Europe, the US and CIS declined as well, resulting in our Ex-China Index dropping to a 3-year low of 5% versus 19% last 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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Steel Market Production Cuts – According to estimates from the China Iron and Steel Association (CISA), China’s daily crude steel output for the middle ten days of May fell 0.3% to 2.039 million tonnes from 2.045 million tonnes in the previous ten days.

Steel Market Production Cuts – Kazakh steelmaker ArcelorMittal Termitau is about to stop production on its number 1 blast furnace for maintenance with production scheduled to resume by June 5^th.

Steel Market Production Cuts – Peiner Träger, the sections division of German producer Salzgitter has stopped production on its 900,000 tpy No 2 EAF at its beams mill following damage to the power supply.

Steel Market Production Cuts – Omani rebar producer Hadid Majan has been forced to reduce output due to gas shortages in the country and production has fallen to 1,500 tonnes per month from 5,000.

Steel Market Production Cuts – Iran’s Pasargad Steel has moved the commissioning of its 1.5 million tpy billet meltshop to September from May due to restrictions on foreign advisers imposed upon the country.

Steel Market Production Increases – Gerdau Long Steel North America has completed maintenance ahead of schedule at its 700,000 tpy crude steel capacity Beaumont Texas steel mill. The maintenance began on May 14 and was completed May 23.

Steel Market Production Increases – Kazahk steelmaker ArcelorMittal Termitau is ramping up 3 blast furnaces following a fire on May 15^th. Before the fire Termitau had planned to produce 333,000 tonnes of steel in the month of May.

Steel Market Production Increases – Toscelik Profil, a subsidiary of Turkish steelmaking group Tosyali will restart production at Zeljezara Niksic, its newly acquired 400,000 tpy EAF in Montenegro in the next few months.

Sources: Steel Business Briefing, American Metal Market

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According to the China Iron and Steel Association, Chinese steel production for the middle 10 days of May eased a scant 0.3% from a record 2.045 million tonnes per day (mtpd) in early May to 2.039 mtpd, although even including the decline, the full month would come in some 1.1% higher than April.

We are surprised at how quiet Beijing has been in resisting scolding its errant loss-making steelmakers for overproduction, and in fact has been instead soothing steelmakers’ nerves with promises of new projects and economic growth; we see this backfiring by keeping production levels high.

Typically, at this point in a steel pricing rout in China, we’d be seeing one of two things – first, up until 2009 we generally saw ramp-up of export tax rebates – vigilance by the rest of the world rattling trade sabers has most probably kept Beijing from going this route.  Second, we normally see noise and threats from Beijing about cutbacks.

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

For a free trial subscription, please contact Jasmine.

Steel Market Production Increases – Pakistani re-roller Abbas Steel intends to commission the 100,000 tpy capacity first phase of its billet plant to feed its rebar and rod mill starting in June. The second phase in early 2013 will bring capacity to 200,000 tpy.

Steel Market Production Increases – Croatian steelmaker Adria Steel has started testing a rebar rolling mill in its Split steelworks.

Steel Market Production Increases – Union workers at Evraz’s Pipe mill in Camrose, Alberta have ratified a new four year labor contract ending the lockout at that facility which began on May 5.

Steel Market Production Increases – ArcelorMittal’s Kazakh unit’s furnaces will begin production again by May 29 following a fire at the sintering plant last week. Production at the plant had slowed to as low as 1,800 tpd from an average of 9,452 tpd.

Steel Market Production Cuts – RG Steel intends to idle its 3.4 million tpy Sparrows Point, MD facility and its 1.4 million tpy Warren, OH facility starting June 4^th as it looks for buyers.

Steel Market Production Cuts – South Russian billet producer Frolovo Volga-Fest has delayed the restart of its 270,000 tpy EAF in the Volgograd region from the beginning of May to July.

Steel Market Production Cuts – Mexican flat steel producer Ahmsa has shut down its 2.3 million tpy number 5 blast furnace along with its No. 2 BOF and a continuous slab caster for 33 days for maintenance.

Sources: Steel Business Briefing, American Metal Market, SteelOrbis

The number of active oil and natural gas rigs in the United States fell 0.2% to 1,983 for the week ending May 25, 2012, after reaching an eleven-week high of 1,986 last week.  The rig count is also up 7.4% from the year-ago level of 1,847.

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 jumped 28.5% to 158 this week, up significantly from 123 last week.  Despite the jump, the rig count is still down 11.7% from the year-ago level of 179.

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 declined for the sixth consecutive week, falling to $130.50 on Friday, May 25, 2012, down some 0.6% from the week before and down 12.7% from mid-April.  The price dropped to a six-month low of $129.90 on Wednesday, May 23, before ticking slightly higher the past two days.

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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After the market close last night, Sims Metal Management released meaningfully disappointing guidance for the June 2012 year, saying that earnings – after adjustments – will be “materially less than” consensus.

Problems impacting results include trading illiquidity and softness in deep sea markets, weak pricing, the potential for gains/losses on derivative contracts and currency markets and global economic weakness.

Sims is the second public scrap company with a significant export business to provide weaker-than-expected results in the past week, as Schnitzer guided likewise to a 25-50% decline in operating income due to similar factors.

Our full report is available to subscribers only and provides further thoughts on Sims’ earnings guidance as well as the implication for the stock and other equities.

For a free 30-day trial subscription, please contact Jasmine.

Steel Market Production Increases – Indian iron miner NMDC has signed a contract with a consortium led by Siemens to construct a 3 million tpy steel plant in eastern India.

Steel Market Production Increases – Croatian rebar mini-mill Adria Steel began testing of its rolling mill yesterday with expected production of 4,000 tonnes per month in the initial phase. The mill also intends to restart its modernized 330,000 tpy capacity EAF in September.

Steel Market Production Cuts – Chinese producer Jinan Steel plans to make upgrades to its rebar line from May 23-25 with output expected to be reduced by 12,000 tonnes.

Sources: Steel Business Briefing, SteelGuru

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According to press reports, RG Steel is set to idle ALL of its facilities and start laying employees off in June; not only at the 3.4m tpy Sparrows Point, Maryland facility, but also at the Warren, Martins Ferry, and Yorkville, Ohio facilities due to “an immediate, and unexpected liquidity crisis.”

The combined real impact of shutdowns at both Sparrows Point and 1.4m tpy Warren will be slightly more than 5% of the sheet market, while the Martins Ferry and Yorkville facilities are finishing only.

Our full report provides our thoughts on the impact on the domestic sheet market as well as the implications for steel equities.

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Steel Market Production Increases – Chinese high-speed steel and die steel producer Tiangong International commissioned a new 80,000 tpy wire rod and bar rolling mill on May 18th.

Steel Market Production Increases – Polish steelmaking group Alchemia has restarted the 145,000 tpy EAF at its seamless pipe plant Huta Batory in Chorzow, southern Poland after a one month stoppage due to a strike that began on April 2^nd.

Steel Market Production Increases – Chinese steelmaker Tianjin Metallurgy No. 1 Steel Group has commissioned the first stage of its 1m tpy welded pipe project in Tianjin, China, with initial capacity of 550,000 tpy.

Sources: Steel Business Briefing, SteelOrbis