Weekly domestic raw steel production increased for the third successive week, rising 0.7% to1.942 million tons (mt) for the week ending February 18, 2012, and increasing 6.7% from the year-ago level.  The highest production on record dating back to 2004 was 2.215 mt on May 13, 2006; the lowest was 0.8 mt on December 27, 2008.

The capacity utilization rate continued a three-week uptrend as well, increasing from 78.1% last week to 78.6% this week, and surpassing the 75.3% rate recorded a year ago. However, this is below the 94.7% rate recorded on January 15, 2005.  Capacity utilization hit a low of 33.5% on December 27, 2008.

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.

The seasonally adjusted value of new U.S. construction starts dropped 2%, from almost $410.5 billion in December 2011 to about $402.2 billion in January 2012, according to figures from McGraw-Hill Construction. This included a 1% drop in the value of non-residential building starts, which fell from about $140.9 billion to $139.8 billion, an 8% decline in the value of residential building starts, which dropped from about $145.4 billion to almost $134.5 billion, and a 3% jump in non-building construction, which rose from $124.2 billion to $127.9 billion.

Dodge Index Falls

In January 2012, the Dodge Index totaled 85 (2000=100), compared to the December 2011 reading of 87. During the course of 2011, the Dodge Index moved within the range of 81 to 101, with the average for last year coming in at 90.

Unadjusted Year-to-Date Start Values Drop 14%

On an unadjusted year-to-date basis, the total value of new construction starts fell 14%, from roughly $31.3 billion in January 2011 to $27 billion in January 2012. This figure included a 16% drop in the value of nonresidential building construction starts, which went from $11.1 billion to $9.3 billion, as well as a 17% hike in the value of residential building construction starts, which rose from $7.5 billion to $8.7 billion, and a 30% plummet in the value of nonbuilding construction starts, which fell from $12.7 billion to $8.9 billion.

Source: McGraw-Hill Construction

Preview of New Report

The American Institute of Architects’ ABI Index – a leading economic indicator of non-residential construction activity 9-12 months into the future – remained above 50 in January, coming in at 50.9, virtually unchanged from 51 in December, and the first three-month string of readings above 50 since last spring. The reading above 50 means the number of architects reporting “rising billings” outpaced the number reporting “declining billings.”

The new project inquiry index was relatively stable at 61.2, down nominally from 61.5 at fairly elevated levels. While in the recent past, we have been somewhat cautious about putting too much weight on the new inquiries index because it does not account for rebidding, and the index has remained above 50 consistently since January 2009, and there was clearly no predictive value in calling an upturn. We would note though that the new inquiries index has been much higher the past two months than during the first 10 months of the year when it ranged from 52.6 to 58.7 and the significantly higher readings have in fact coincided with a higher overall ABI reading.

The number of active oil and natural gas rigs in the United States rose 0.3% to 1,994 for the week ending February 17, 2012, and is up 16.4% from year-ago levels.

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 0.6% from 709 last week to 705, but was 10.9% 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.

New Report Preview

Chinese Vice Commerce Minister Zhong Shan was quoted by China Daily promising increases of export tax rebates, “at an appropriate time,” something Beijing has not done since 2009.

The government said that “labor intensive” sectors would benefit, without providing specifics, but we believe there may be some risk that this could include steel, given the sector’s prior history of export tax rebates to facilitate exports.

Our new report provides our thoughts on the near-term and longer-term impact of this news.

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