Weekly domestic raw steel production increased for the second consecutive week, rising 0.6% to 1.959 million tons (mt) for the week ending March 10, 2012, a post-recession high and 6.0% higher than the year-ago level.  The lowest production since the recession began was 0.8 mt on December 27, 2008.

The capacity utilization rate also hit a post-recession high, coming in at 79.3% compared to 78.8% last week and 75.5% a year ago. The lowest capacity utilization rate since the recession began was 33.5% on December 27, 2008.

Source: AISI and Steel Market Intelligence

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Our Advance/Decliner Index continued to climb for the fourth consecutive week, rising to 87% from 80% last week, the highest since late January 2011 (any reading over 50 means more price increases were recorded than decreases).

Our Ex-China Index was the main driver behind the increase, rising from 79% to 87%, while our China Index remained robust, increasing from 90% to 92%, the highest level since mid-August 2011.

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 – An electric arc furnace (EAF) malfunction at Ductil Steel’s Otelu Rosu billet plant has forced the Romanian longs producer to halt melting operations on March 10th.

Steel Market Production Cuts – The Spanish-headquartered welded tube maker Condesa is ceasing production at its Tubos de Celra site in Catalunya, Spain, as part of a plan aimed at adapting its production capacity to current demand.

Steel Market Production Increases – Mexico’s Tenaris Tamsa, controlled by Techint Group, commissioned operations at its first sucker rod plant with an annual capacity of 1.2m in Veracruz, México, increasing Tenaris’ current production capacity by approximately 20%.

Steel Market Production Increases – Hungarian flats producer ISD Dunaferr plans to increase its rolling production by almost 60% to as high as 2.5 mt by year’s end, as Europe’s economy improves.

Steel Market Production Increases – Tianjin Pipe (TPCO) plans to begin “vertical” construction this month on a finishing and threading facility in Gregory, Texas, the first phase of which is expected to be completed by early 2013. The seamless steel pipe mill will eventually have an annual capacity of 500,000 tonnes.

Steel Market Production Increases – Ariazob Steel’s new rolling mill was formally inaugurated on Sunday March 11th, which has a rolling capacity of 400,000 tpy of rebar and round bar.

Steel Market Production Increases – Kuwaiti-Japanese joint venture Sulb expects a September start to production at a 900,000 tpy meltshop in Bahrain, which will make the company almost entirely self-sufficient in billet for its facilities both in Bahrain and in Jubail, Saudi Arabia.

Steel Market Production Increases – Venezuelan steelmaker Sidetur expects to triple its 2011 rebar output of 184,000 tonnes to 540,000 in 2012.

Sources: American Metal Market, Steel Business Briefing, Metal Bulletin

The spot reference price for 62% Fe iron ore cfr North China fell to $142.60 on Friday, March 9, 2012, down 0.4% from last Friday’s price of $143.20.  Prices declined all week but are still 22.0% higher than the recent low of $116.90 on October 28, 2011.

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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Recently released and revised Chinese steel production and import/export data have painted a very different picture of the steel business in China so far in 2012 which goes far in explaining the extent of the pricing weakness we saw through the first two months of the year.

There were meaningful revisions to January and February steel production data, which left production some 11.2% higher than originally disclosed by the China Iron & Steel Association, meaning the supply of steel in China was far greater than originally thought, while new trade statistics released over the weekend showed that the “balance of trade” in steel in February dropped 23.7% from January – as a result of a 9% decline in exports and a 34% increase in imports.

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Steel Market Production Cuts – ArcelorMittal Tubarao will stop operations at its 3.5 mtpy No.1 blast furnace for 100 days from next month to perform a planned relining, while resuming operations at its 1.2 mtpy No.2 furnace in order to compensate for the reduced pig iron output.

Steel Market Production Increases – Hebei province-based Chinese steelmaker Xinxing Ductile Iron Pipes officially commissioned its Hejing special steel project – which has a designed annual production capacity of 3 mt of special steel.

Steel Market Production Increases – Moldavian Metallurgical Works (MMZ) restarted crude steel production on March 6th with plans to produce 40,000-42,000 mt of finished steel products in the current month of March.

Steel Market Production Increases – The state-owned, Venezuelan steel mill and iron ore producer Sidor restarted operations earlier this week following a two-week break caused by unspecified operations issues.

Sources: Steel Business Briefing, Steel Orbis and Metal Bulletin

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There were two very meaningful results this month in the ISM Steel Survey.

1. Imports to Decline. Buyers plan to use less foreign steel, with only 10% indicating plans to increase dependence on imports, down from 25% in December, which was the highest since 2006. Foreign prices are becoming less competitive – with only 23% of buyers now see foreign prices “below” or “well below” domestic, as compared to 42% saying “below” in January, and 8% saying “well below.” Similarly foreign offerings are disappearing, with NO buyers reporting foreign mills as “very aggressive,” down from a full 33% in January (an all-time high going back to mid-2003).

All of this is consistent with watching foreign prices rise at a faster clip than domestic in the past 6 weeks, which supports our view that imports should be declining.

2. New Manufacturing Facility Plans Hit a Peak. A whopping 54% of all respondents indicate plans to build new manufacturing facilities, an all-time high (going back to mid-2003) breaching the recent peak of 46% in August, 2011 – the pre-recession peak though was 46% in March, 2005. To quote the sage – “reports of the death of manufacturing” have been truly exaggerated.

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The number of active oil and natural gas rigs in the United States fell 0.8% to 1,973 for the week ending March 9, 2012. However, the rig count is up 15.0% from the year-ago level and is just 2.6% off the 2011 high of 2,026 for the week ending November 4, 2011.

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 this week decreased 3.8% to 655 from 681 last week, marking the fifth straight decline – totaling 7.7% over that period – although the count was still 4.3% higher than last year.

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.