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.

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The number of active oil and natural gas rigs in the United States rose for the third straight week to 1,986 for the week ending May 18, 2012, climbing 0.6% from last week’s 1,974. The rig count is also up 8.5% from the year-ago level.

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 also increased 2.5% to 123 this week from 120 last week, breaking 14 straight weeks of declines.  The rig count is down 14.0% from the year-ago level however.

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.

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Companhia Siderurgica Nacional (CSN) reported adjusted EBITDA of R$1.113B, some 15.4% short of the Street’s R$1.316B and was 24% below 4Q’s R$1.463B.  The company mainly attributed weaker results to a combination of a 16.5% drop in iron ore volumes due to excessive rainfall in Brazil as well as 9.3% decline in iron ore prices, but said that steel results declined as well due to a less favorable product mix and higher costs.

Guidance was limited during the call, with CSN providing qualitative comments only. The company was bullish about the prospects in the Brazilian market, saying that costs are declining due to lower iron ore and coal prices and imports are likely to fall from 2m tonnes in 2011 to 1m tonnes this year which should increase domestic market share.  The company said that for hot-rolled coils domestic prices are actually at a slight discount to imports, while the domestic price premium is “slightly positive” for cold-rolled and 5-7% for hot-dipped galvanized sheet.  Management said that given the combination of these factors, it will try to raise prices by 5-10% by the end of June.

The positive commentary was contrary to what Klockner had said about the Brazilian market just a few days before during their conference call.

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Steel Market Production Increases – ArcelorMittal Termitau plans to resume normal operations by the end of the month following a fire on May 15^th that led to the idling of the hot coil rolling and galvanizing lines as well as reduced production at the CRC mill.

Steel Market Production Increases – Chinese producer Xugang has announced that it plans to construct new facilities with a total production capacity of 10 million tonnes per year in a move intended to shift its focus to the production of specialty steels.

Steel Market Production Cuts – Nippon Steel is extending its reduction in output of H-beams and sheet pile at its Kimitsu works till at least the end of June from early June, citing high inventories.

Sources: Steel Business Briefing, American Metal Market, SteelOrbis

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ThyssenKrupp (TKA) reported MarQ adjusted EBIT of €134m, below the Street’s €171.6m, but a 61% improvement sequentially and 69% above the year-ago quarter. Increased profits in the Components Technology and Marine Systems businesses offset lower earnings in the Elevator and Plant Technology units, while the steel business saw increased volume but severe price pressure.

Guidance for fiscal 2012 was for EBIT to be in the mid-three-digit-euro range, which would represent a modest improvement in 2H (JunQ and SepQ) compared with 1H (DecQ and MarQ). Earnings in the Steel Europe business should approximate those of 1H, while the Steel Americas unit will see continuing price pressure, the company said.

In the US, management said operations at the Alabama rolling mill continue to improve, with volumes increasing 25% to 777,000 tonnes in 1Q from 622,000 tonnes in 4Q; sales were 154% higher than year-ago levels.  However, Thyssen said they have had to offer discounts to enter markets and had excess inventory that was sold at higher-than-originally expected discounts.

Our full report is available to subscribers only and provides further thoughts on Thyssen’s MarQ conference call, as well as our views on the potential sale of Thyssen’s plants in the US and Brazil, our opinion of the stock and the implication for other steel equities.

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The spot reference price for 62% Fe iron ore cfr North China steadily declined all week, settling at $131.30 on Friday, May 18, 2012, down some 4.6% from last Friday to the lowest level since December 19, 2011.  Iron ore has now posted five straight weekly declines and is now down some 12.1% from the recent peak on April 13.

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