Steel Market Production Cuts – ­China’s Yunnan Province has announced that it is targeting the elimination of 500,000 tonnes of annual steel production capacity in 2012.

Sources: SteelOrbis

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According to the Steel Import Monitoring and Analysis (SIMA) licensing program, May steel import licenses declined 10.4% to 2.63 million tonnes (mt) from April’s 2.93 mt.  The overall decline was driven by weakness in the sheet market, as sheet imports dropped 18.8% from a multi-year high in April in tandem with a 16.3% decrease in semi-finished licenses as domestic mills slowed purchases of slab to roll into sheet.

Chinese steel imports into the US in May bucked the overall trend and are poised to potentially reach the highest level since the spring of 2009 (just before the huge Chinese oil pipe case was filed) as a doubling in hot-rolled bar imports was only partially offset by fewer licenses of hot-dipped galvanized, cold-rolled sheet and wire rod.

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

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Weekly domestic raw steel production dropped some 2.1% to 1.920 million tons (mt) for the week ending June 2, 2012, falling for the third consecutive week from the post-recession high of 2.005 (mt) to the lowest level since January.  Despite the downturn, production is up some 4.9% 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 from 79.4% last week to 77.7% this week, but was higher than the year-ago level of 74.8%.  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 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

Steel Market Production Cuts – ArcelorMittal no longer intends to restart production on the two idled blast furnaces at its steelworks in Florange, France this year citing weak market conditions and what is generally a seasonally weaker 4^th quarter.

Steel Market Production Cuts – Turkish long steel producers have begun cutting back production in the face of lower prices with three producers having already begun cutting back production by 20% and others reportedly considering cuts.

Steel Market Production Cuts – Chinese producers Tangshan and Shougang reportedly have plans to do routine maintenance at their hot strip mills in June with an expected total loss of 40-50,000 tonnes of HRC production at each of the mills.

Steel Market Production Cuts – Latin American steel producer Ternium has had construction on its new slab mill in Açu Port stopped by Brazilian public prosecuters who allege irregularities in the mill’s licensing process.

Sources: Steel Business Briefing, American Metal Market

The number of active oil and natural gas rigs in the United States fell 0.2% to 1,980 for the week ending June 1, 2012, the second consecutive decline after reaching an eleven-week high of 1,986.  However, the rig count is up 6.8% from the year-ago level of 1,854.

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 dropped 1.3% to 156 this week, down from 158 last week.  The rig count is also down 15.2% from the year-ago level of 184.

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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We think by now it is painstakingly clear that June prices for both shredded and prime scrap are going to decline, the only question is how much.

At this point in time, we expect prices for both grades to drop by at least $20-40/ton with prime likely showing a smaller drop than shredded, as the prime market is less influenced by the export market which has weakened substantially.

Our full report provides our outlook for steel prices by product as well as the implications for steel equities.

For a free trial subscription, please contact Jasmine.

The spot reference price for 62% Fe iron ore cfr North China rose some 3.4% this week to $135.00 on Friday, June 1, 2012, ending a six-week downward trend and some 3.9% above the six-month low of $129.90 seen on May 23.  The price is still down some 9.6% from the recent peak of $149.40 on April 13 however.

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