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February import licenses are down 10% from last month to 2.31 million tonnes (mt), according to Steel Import Monitoring and Analysis (SIMA) licensing program.  While there is typically some decline in February imports due to the short month, we’re nevertheless surprised at the magnitude – which adjusted for fewer days would still point to a 4% decline.

Meaningful declines were seen for rebar (down 43%), line pipe (down 38%), beams (down 36%), cut-to-length plate (down 25%), OCTG (down 14%) and semi-finished steel (down 6.0%).  The biggest increase was seen for wire rod, up some 62%.  Total sheet licenses rose a modest 4% although the trend differed across products.  Tonnage of hot-dipped galvanized sheet and coiled plate rose 36% and 29%, partially offset by a 25% drop in cold-rolled sheet licenses.  Hot-rolled sheet licenses were up just 1%.

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

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Our Advance/Decliner Index rose for the third straight week, increasing from 70% last week to a seven-week high of 80% (any reading over 50 means more price increases were recorded than decreases).

Our China Index increased from 53% last week to 90%, the highest since mid-August, while our Ex-China Index rose from 74% to a five-week high of 79%.

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 – Malaysian mills have cut their rebar production by 25-40% of running capacity in response to poor demand at home.

Steel Market Production Cuts – Utah-based SME Steel has begun layoffs and will completely halt operations at its Pocatello steel plant by March 31st, 2012 due to lost contracts.

Steel Market Production Cuts – Steel giant ArcelorMittal Brazil may not resume its US$1.2bn expansion work at longs unit Monlevade this year that would increase capacity to 2.4 mtpy of crude steel from the current 1.2 mtpy.  The steelmaker has also delayed two other longs expansion projects – the US$300m expansion of the Espírito Santo-based Cariacia rebar and sections plant and the Juiz de Fora longs plant in Minas Gerais – that would more than double its output to 2.2 mtpy, due to challenging market conditions.

Steel Market Production Increases – Slovakian mini rebar mill Slovakia Steel Mills (SSM) will launch full production after the company completes tests at its wire rod mill by the second quarter of 2012.

Steel Market Production Increases – Korea’s leading special steel bar producer, SeAH Besteel, is installing a new continuous casting machine of 700,000 tpy for billet that is scheduled to start this October at its main works in Gunsan, southwest of Seoul.

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

Weekly domestic raw steel production increased 0.9% to 1.947 million tons (mt) for the week ending March 3, 2012, which is a post-recession high and 6.6% 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 78.8% compared to 78.1% last week and 74.7% a year ago. The lowest capacity utilization rate since the recession began was 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.

Source: AISI and Steel Market Intelligence

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A.M. Castle (CAS) reported a 4Q loss of $(0.52)/share, which adjusted to a profit of $0.05/share excluding acquisition-related charges and losses associated with the mark-to-market adjustment for commodity hedges, below the Street’s $0.12/share.  Sales for the quarter rose 19.8% to $282.2M from $235.6M in 4Q 2010.

During the conference call, guidance was for sales growth of 10-15% across all of the company’s businesses as demand continues to improve in key markets including oil and gas, mining and heavy equipment, and general industrial markets.  We believe guidance was incorrectly interpreted by some as including the impact of Tube Supply, which was later clarified in an 8-K that the 10-15% growth was for legacy businesses “organic growth” as well as the Tube Supply business separately.

Our full report is available to subscribers only and provides further thoughts on Castle’s 4Q earnings report and conference call as well as the implication for the stock and other equities.

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The number of active oil and natural gas rigs in the United States rose 0.4% to 1,989 for the week ending March 2, 2012.  The rig count is up 16.5% from the year-ago level and is just 1.8% 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% to 681 from 701 last week, marking the fourth straight decline, although the count was still 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.

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February prices for OCTG trended down an average of 0.5% versus January adjusting for another mix change, according to data provided by Pipe Logix earlier this week, although the reported “average market basket” price of oil country tubular goods (OCTG) rose 2.5% to $1,914/ton.

We continue to believe that a combination of increased domestic capacity and the highest levels of OCTG imports in January for the past three years are creating downward pricing pressure.

Our full report is available to subscribers and provides further thoughts on OCTG pricing and margins as well as the implications for shares of OCTG producers.

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Steel Market Production Increases – Citing rising demand, RG Steel LLC plans to restart its dormant No.2 galvanizing line, which will produce heavier-gauge coated products at Sparrows Point starting in early April.

Steel Market Production Increases – Russian miner and steelmaker Mechel has recently launched the universal rolling mill at its principal steelmaking works in Chelyabinsk, which includes a 1 million tpy continuous bloom caster, a 1.2 million tpy ladle furnace, and a two-chamber 650,000 tpy vacuum degasser.

Sources: Steel Business Briefing, American Metal Market