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Vallourec (VK) reported 1Q EBITDA of €152m, some 13.1% below the Street’s €175m as well as a 40% decrease sequentially and a 25% decline compared with the year-ago quarter. The EBITDA margin fell to 12.7% in 1Q from 16.4% in 4Q 2011 and 17.7% in 1Q 2011, driven by increased start-up costs for projects in the US and Brazil and lower profitability from its Brazilian mine due to lower iron ore prices, management said.  The company had expected a weak quarter, but European orders didn’t pick up sequentially as much as forecast, with pricing pressure exacerbating results.

Guidance for 2012 was reduced due in part to a weaker-than-expected 1Q, with management now expecting sales growth of 5% for 2012, compared with 10% previously. The EBITDA margin will improve through the year, Vallourec said, with the full-year margin at 15%, while average selling prices should be higher than in 2011.

The oil & gas market is strong, VK said, but commented that its 500,000 tpy OCTG mill in Ohio is three months behind schedule, with the first pipe now expected to be produced this fall.  The company said that CapEx for the mill is now expected to be $1.05B, up sharply from the original $650m budget.

Our full report is available to subscribers only and provides further thoughts on Vallourec’s 1Q conference call, as well as our opinion on the stock and the implication for other steel equities.

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April MSCI shipments declined a seasonally normal 2.1% from March, but a 4.3% increase in flat-rolled inventories drove total inventories 3.3% higher than March levels to a post-recession high, resulting in adjusted months’ supply rising from 2.32 to 2.45, the highest months’ supply in over a year.

The jump in flat-rolled inventories puts still further pressure on the weak sheet market, which has been feeling the effects of a surge in imports recently.  We suspect some buyers may have come off the sidelines when sheet prices were starting to rise in March as well.  Inventories of all other products rose during the month, with plate up 2.9%, beams up 1.1%, pipe up 1.0% and bar up 0.3%.

Our full report is available to subscribers and provides further thoughts on April distributor shipments and inventories by product as well as implications for steel equities.

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Klöckner and Co. (KCO) reported 1Q EBITDA of €45m, short of the Street’s €48.8m, but in line with company guidance of €40-50m. Results were down sharply from the €104m of EBITDA from a year ago, which management said was aided by windfall profits, but were up from the adjusted €24m in 4Q.

Guidance was for 2Q EBITDA to increase sequentially to €50m-€60m on slightly higher shipments with the company expecting the current oversupply to press margins. Volume for the full year should rise about 5% from 2011, but gains in EBITDA depend on a recovery in Europe in 2H.  KCO is more optimistic about the US market, where shipments could be up 10% in 2012, while European tonnage could fall by “up to 5%.”

KCO said that inventory levels in the US and Europe are probably “a bit” too high and will reduce inventories going forward.  The company said it will be cautious on purchasing because there’s no need to pre-buy material.

In the US, the company said that imports may dry up by late May, with tonnage coming in at much lower levels in 3Q.

Our full report is available to subscribers only and provides further thoughts on KCO’s 1Q conference call, as well as our opinion on the stock and the implication for other steel equities.

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TMS International (TMS) reported 1Q EBITDA of $36.8m, ahead of the Street’s $34.6m and the adjusted $32.8m recorded in the year-ago period.

The yoy improvement was driven by new service contracts signed in 2011 at the Mill Services group, although the large start-ups in South Africa hurt EBITDA margins by 90 basis points.

Prior guidance for 2012 was reaffirmed, with EBITDA expected to total $142-148m, in line with the Street’s $145.39m.  In 1Q, TMS’ EBITDA margin (as a percentage of revenue after raw materials cost) was 23.6% and management expects to see normalized margins of 24-26% going forward on an annual basis.

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Our Advance/Decliner Index fell again, dropping from 30% to 27%, the lowest reading since early December (meaning more price cuts were reported than increases).

Our China Index drove the weakness with no price increases in the week as CISA’s late April production flash showed a 1.5% increase from mid-April to a new 10-day record, with full-month output estimated at 2.026 million tonnes per day (mtpd), which would annualize to 741 million tonnes, some 8.5% higher than previous high.

Our Ex-China Index was mostly stable, rising from 33% to 35%, as an uptick in pricing in the MENA region was offset by weakness in all other regions, including East Asia, where until now pricing had been resilient.

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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