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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.

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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

Steel Market Production Increases – RG Steel has restarted operations at its 3 million tpy Sparrows Point, Maryland blast furnace which was temporarily shut down again over the weekend.

Steel Market Production Increases – Turkish producer Icdas is set to boost capacity by 1 million tonnes per year at its Biga works in the Marmara region of Turkey when its new billet meltshop comes online in early June.

Steel Market Production Cuts – Italian steel group Arvedi and Brazilian producer Metalfer have postponed the start of the 360,000 tonne per year initial phase of their joint-venture tube mill in São Paulo state, Brazil.

Steel Market Production Cuts – ArcelorMittal’s expansion project aimed at doubling billet and wire rod capacity to 2.4 and 2.3 million tonnes per year at the Monlevade unit in south-eastern Brazil has been suspended indefinitely due to a lack of domestic demand and a poor outlook globally.

Steel Market Production Cuts – Turkish producer Yolbulan Bastug has placed plans to install a new 700,000 tonnes per year capacity rebar and wire rod mill on hold due to a slowdown in local longs trade and certain export markets.

Sources: Steel Business Briefing, American Metal Market

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As global pricing weakened still further, largely on the back of new record production from China combined with weak economic growth globally, our Advance/Decliner Index plummeted from 31% to 16%, the lowest level since early November (any reading below 50 means more price cuts were reported than increases).

Pricing deterioration in the US, MENA, Europe and the CIS drove our Ex-China Index falling to a six-and-a-half month low of 19% from 38% last week.

Our China Index remained at zero for the third consecutive week – just the fourth time in history this has ever occurred – as steel prices remained under pressure despite Beijing’s reserve requirement rate cut and supportive pro-growth verbiage.  The Chinese steel market remained spooked by a combination of a mid-May flash production report showing yet another record production month in the offing, as well as a 5% plunge in spot iron ore prices which are being equally driven by weakened steel demand.

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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Weekly domestic raw steel production declined 1.4% to 1.976 million tons (mt) for the week ending May 19, 2012, falling from last week’s post-recession high of 2.005 mt.  Despite the downturn, production is up 8.5% 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 81.1% last week to 80.0%, but was higher than the year-ago level of 74.5%.  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 April 21, 2012 and 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

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April preliminary steel imports increased 3.4% to 3.0 million tons (mt) from March’s 2.9 mt as an 8.0% increase in finished steel imports was only partially offset by a 10.2% drop in semi-finished steel imports.  The uptick puts year-to-date imports nearly 30% higher than year-ago levels.

The increase was driven by a 46.8% jump in sheet tonnage to the highest level since December 2006.  While there was some pricing premium for domestic sheet in early January, we suspect that much of the jump in sheet imports is now being driven more off of a supply-push import surge due to overproduction in other regions, particularly China.

Chinese imports jumped 35.6% in April to the highest level since July as overproduction in the country has resulted in a 28% increase in exports year-to-date.  We believe China is the main reason behind the 55.7% surge in wire rod imports – to a 4-year high – while Chinese steelmakers have also continued to ship higher levels of cold-rolled and coated sheet products that benefit from China’s VAT export tax rebates.

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

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While April global steel production rose 0.5% to a new all-time high of 4.279 million tonnes per day (mtpd), a 1.6% rise in Chinese production masked a 0.6% decline in the rest of the world. The 50% increase in Chinese production since before the start of the recession, coupled with a 28% increase in Chinese net exports year-to-date is a stark reminder of the reemergence of China’s runaway steelmaking freight train.

Despite the fact that most Chinese steelmakers are bleeding red ink, so far in May, Chinese production continues at a record pace, running at 2.045 mtpd or an annualized 749 mt, some 9.6% above the prior peak.

Looking at the US, we’re seeing production still down 9% from the pre-recession peak, despite the fact that imports are actually up 32% year-to-date.

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

For a free trial subscription to our reports, please contact Jasmine.