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SunCoke Energy (SXC) reported 1Q earnings of $0.24/share, which adjusted to $0.33/share excluding one-time items, ahead of the Street’s $0.29/share.  1Q EBITDA came in at $55.8m, which adjusted to $64.1m after non-recurring items, above 4Q’s adjusted $49.6m and $26.6m in the year-ago period. Management attributed the increase from a year ago to the start-up of the Middletown, Ohio coke facility and improvements at Indiana Harbor, offset by an increase in the reject rate for the Jewell coal operations.

Guidance for 2012 was unchanged from the previous quarter with management expecting earnings of $1.30 and $1.65 (assuming a 22% tax rate) and adjusted EBITDA of $250m-$280m. Management forecasts that the EBITDA for domestic coke operations will be $202m-$229m (less ongoing capex), with EBITDA per ton at $55-$60. In 3Q 2011 the guidance excluding Middletown was $50/ton.

The coke business is expected to report a yoy improvement in EBITDA of $95m-110m in 2012, compared with the previous estimate of $74m-$84m. Offsetting the improvements in coke operations are issues in the coal business, most notably increases in cash costs per ton at the Jewell operations. The coal mining business is now expected to contribute just $5m-$15m of the EBITDA improvement this year.

Our full report is available to subscribers only and provides further thoughts on SunCoke’s 1Q conference call, as well as our opinion on the stock and the implication for other steel equities.

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Steel Market Production Increases – Croatian rebar mini-mill Zeljezara Split plans to produce 4,000 tonnes of billet a month in May during the ramp-up to full capacity at the 150,000 tonne per year facility. The restarted facility is also expected to have a 330,000 tonne per year meltshop come online in the third quarter of this year.

Steel Market Production Increases – Korean steel maker Dongbu Steel is building a new 80,000 tonne per year color-coating line in Thailand with a commissioning set for March 2013.

Steel Market Production Cuts – Labor negotiations at Evraz North America’s Camrose, Alberta pipe mills have failed and all workers were sent home today with a lockout starting on Saturday. The two pipe mills at the facility are capable of producing ERW and DSAW pipe at a rate of 200,000 and 140,000 tonnes per year, respectively.

Sources: Steel Business Briefing, American Metal Market

The number of active oil and natural gas rigs in the United States rose 1.0% to 1,965 for the week ending May 4, 2012, rebounding from last week’s 8-month low of 1,945.  The rig count is also up 7.0% 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 decreased 2.2% to 131 this week from 134 last week, marking the thirteenth consecutive weekly decline.  The rig count is up 6.5% 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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According to just-published data from American Metal Market (AMM), May prices for shredded scrap (obsolete) remained unchanged at $430/ton, while #1 busheling (prime) scrap fell a modest $3/ton (or 0.7%) to $445/ton.

In late April, steelmakers themselves were expecting to have to pay higher scrap prices, as the market for shredded scrap in particular had been tightening up, and with a reported deal done up $5-10/ton just last week, we had suspected to see a modest uptick for obsolete grades for the month.  However, we have seen a weakening in global steel prices in recent weeks on slowing demand, so that the likely culprit for flat – instead of higher – pricing is the decline in overseas demand for US scrap.

The slight drop in prime scrap pricing is less surprising, as we believe that increased supply from stronger manufacturing activity is in balance with rising domestic steel production levels, which has led to modestly higher scrap demand.

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Steel Market Production Increases – Italian longs producer Leili will keep its 400,000 tonne per year rebar mill in Brescia open after having reached an agreement with regional authorities and unions.

Steel Market Production Cuts – Turkish producer Colakoglu has reduced its HRC capacity utilization to 60% of its annual 4.5 million tonnes capacity due to sluggish demand and a slowdown in sales to the white goods and automotive sector.

Steel Market Production Cuts – Workers at Evraz North America’s Camrose, Alberta pipe mills are facing a Monday morning lockout if labor negotiations remain unresolved. The two pipe mills at the facility are capable of producing ERW and DSAW pipe at a rate of 200,000 and 140,000 tonnes per year, respectively.

Sources: Steel Business Briefing, American Metal Market

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Our Advance/Decliner Index fell for the third consecutive week, dropping from 46% to a five-month low of 30% (meaning more price cuts were reported than increases).

Our China Index declined from 43% to 20% – the lowest since Golden Week – as steelmakers continued to cut domestic long product prices and spot pricing for several other products declined as demand has not picked up as much as anticipated and Chinese production continues at near-record levels.

Our Ex-China Index declined as well, also falling to a five-month low of 33% from 47%.  Steel prices weakened in Europe, MENA, the US, the CIS and South America, while pricing in East Asia remained strong.  A major part of the weakness was due to reduced export prices from China and Turkey in response to weakening domestic prices.

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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Graftech International (GTI)’s adjusted 1Q EBITDA of $40.9m was in line with the Street’s $41.1m and within company guidance of $35-45m.  1Q EBITDA was down 32% yoy from last year’s $60.2m as destocking by steel customers led to substantially reduced volumes.

Guidance for 2Q was for EBITDA to rise to $60-70m – versus the Street’s $61.12m – due to destocking winding down, customers running at modestly higher operating rates and the full impact of electrode price increases of 10-15% (some 20% are on a April to April calendar), partially offset by reduced graphite electrode utilization rates and an annual maintenance outage at Seadrift (needle coke facility) during the quarter.

The company kept full-year 2012 EBITDA guidance unchanged at $250-290m as GTI expects destocking initiatives to be complete by year end which will lead to higher electrode – and thus needle coke – shipments in the second half of the year.

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Steel Market Production Increases – Turkish steelmaker Erdemir has relit the No. 4 unit at its Iskenderun plant, the largest blast furnace in Turkey, after idling it on April 11 for safety reasons. The furnace has a hot metal capacity of 1.8 million tonnes per year.

Steel Market Production Increases – Croatian rebar mini-mill Zeljezara Split has scheduled the restart of its 150,000 tonne per year round bar and rebar rolling mill to between 9-15 May.

Steel Market Production Increases – State steel producer Rashtriya Ispat Nigam Ltd. (RINL) of India recently tapped its first hot metal from the 2.5 million tonne per day No. 3 blast furnace at its Visakhapatnam steelworks.

Steel Market Production Cuts – Abu Dhabi National Company has indefinitely postponed plans to construct a 300,000 tonne per year rebar mill due to weak local consumption.

Sources: Steel Business Briefing