Steel Market Production Cuts – Italian bar and rod producer Acciaierie Venete has halted crude steel production at its works in Sarezzo due to a fire that broke out on Monday night, and the company expects to restart production in two to three days; Sarezzo has a nameplate capacity of 540,000 tpy of crude steel.

Steel Market Production Increases – SSI will relight its Redcar plant back to life in less than two weeks, as part of its GBP1.6 billion expansion plan.

Steel Market Production Increases – RG Steel LLC started to bring the 4,000 tpd Warren blast furnace back online last Sunday, and the company expects to resume steelmaking later this week.

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

The US economy grew at an annual rate of 3% according to today’s revision of Q4 2011 Real U.S. GDP by the Bureau of Economic Analysis (BEA) from the previously reported 2.8%. This uptick was not expected, as a Bloomberg survey of economists had predicted no change from the number initially reported, and in fact some 35% of the economists surveyed had looked for a downward revision. According to the BEA, the upside reflected an upward adjustment to consumer spending for services and a downward adjustment in consumer spending on durable goods.

Current-dollar GDP, the market value of the nation’s output of goods and services, increased 3.9%, or $144.7 billion, during Q4 2011 to a level of $15.3 trillion from about $15.1 trillion in Q3 2011. During Q3 2011, current-dollar GDP increased 4.4%, or $163.3 billion, from about $14.93 trillion.

2011 GDP Increases at Slower Rate than 2010

For the full year 2011, U.S. real GDP increased 1.7% from annual 2010 levels. This was a slower rate of increase than the 3% growth in GDP recorded between 2009 and 2010. BEA data indicates the increase in real GDP in 2011 primarily reflected positive contributions from personal consumption, exports, and nonresidential fixed investment that were partly offset by negative contributions from state and local government spending, private inventory investment, and federal government spending.

Current-dollar GDP increased about 4%, or $567.9 billion, in 2011 to a level of about $15.1 trillion from about 14.53 trillion.  In 2010, current-dollar GDP increased 4.2%, or $587.5 billion from about $13.94 trillion.

The deceleration in real GDP in 2011 primarily reflected downturns in private inventory investment and in federal government spending and a deceleration in exports that were partly offset by a deceleration in imports and an acceleration in nonresidential fixed investment.

Source: Bureau of Economic Analysis, Bloomberg

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Our Advance/Decliner Index increased to 70% from 66% last week, and has now risen two weeks in a row since falling below the critical 50% level.  Strength was most evident in the MENA region, the CIS and East Asia as prices have rebounded mainly on the back of higher scrap prices as well as modestly improved demand in some countries following China’s Golden Week holidays.

Our China Index remained flattish at 53% compared with 50% the week before as the Chinese market is still treading water.  We suspect the usual post-holiday pickup in the country is not yet appearing largely because the holidays were so early this year and winter is still blunting construction demand.

In the global market, flat product pricing continues to remain strong, while long product prices showed a meaningful improvement last week as international scrap prices continued to climb and iron ore prices have now rebounded over 6% in the last 10 days.

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 – Stoppages caused by disgruntled workers cost Sidor, a Venezuelan steel and iron ore producer, US$361m in lost output in 2011, and recent protests may mean that the company misses its 2012 production target of 3.7 mt of crude steel.

Steel Market Production Increases – Eastern China’s Xiwang Special Steel Company will commission a 500,000 tpy heavy bar rolling mill by the end of this month, increasing its finished steel capacity to 2.1 mtpy.

Steel Market Production Increases – Northern China’s Anshan Iron & Steel (Angang) is expected to begin production at its Putian mill with an annual production capacity of 700,000 annealed CRC and 300,000 HDG in the middle of this year.

Steel Market Production Increases – A slew of new SBQ bar capacity expansion projects are in the works due to steady demand from the automotive and heavy equipment markets. So far, the announced capacity increases include a $76m expansion by Steel Dynamics; an $85.2m project by Republic; a $67m expansion by Gerdau; a $290m expansion by Nucor, and a $225m expansion by Timken.

Steel Market Production Increases – UAE-based steelmaker, Emirates Steel, is currently taking bids for equipment for phase 3 of its expansion, which will increase HRC output by more than 50% to 4.6 mtpy from 3 mtpy, and the contract will be awarded in April, nine months earlier than initially scheduled.

Sources: Steel Business Briefing, American Metal Market

New orders for durable goods in January 2012 declined 4%, following a 3.2% gain in December, according to the U.S. Census Bureau. The median of a Bloomberg survey of economists was for a decline of 1%, a full 3% better than the reported number.

The decline comes after a string of 3 months of increases, and mirrors the decline in January 2009, when the economy was still in the early stages of contraction. We believe that the data is misleading, however, as the magnitude of the decline was likely exaggerated by the expiration of a full-depreciation tax incentive on December 31, 2011, which most probably “borrowed” some fixed investment from the 1Q 2012 into the 4Q of 2011.

Excluding transportation, new durable goods orders fell about 3%, from $155.8 billion to $150.8 billion, while durable goods shipments fell about 1% from $159.3 billion to $157.5 billion. Excluding defense, new durable goods orders declined roughly 4%, from $207 billion to $197.7 billion, but durable goods shipments fractionally from $197.1 billion to $197.7 billion.

Transportation Orders Fall

New orders of transportation equipment fell 6% between December 2011 and January 2012, from $58.8 billion to $55.2 billion. However, shipments rose 5%, from $47.7 billion to $50.3 billion.

Primary, Fabricated Metals Orders Trend Differently

Month-over-month trends in new orders for primary metals and fabricated metal products differed in January 2012. New primary metals orders fell about 6.5%, from $28.9 billion to $27 billion, while new fabricated metal products orders rose almost 1%, from $26 billion to $26.2 billion.

In terms of shipments, $27.5 billion worth of primary metals were shipped in January 2012, down about 3% from $28.3 billion the prior month, and $26.3 billion worth of fabricated metal products were shipped in January 2012, up slightly from $26.2 billion in December 2011.

Source: Steel Market Intelligence, US Census Bureau, Bloomberg News.

Consumer confidence surged in February, with the Conference Board reading rising from 61.5 in January to 70.8, exceeding not only the forecast level of 63 from the median of the Bloomberg survey of 77 economists, but surpassing even the most optimistic forecast in the group, which ranged from 58-67.6.

Both components of the Index contributed to this overall increase with the Present Situation Index rising from 38.8 to 45, while the Expectations Index climbed from 76.7 to 88.

Highlights of each individual index follow.

Present Situation Index

The percentage of consumers rating current business conditions as “bad” decreased 18.5% during the past month, from 38.3% to 31.2%. The percentage of consumers rating current business conditions as “good” fractionally rose from 13.2% to 13.3%. Slightly more consumers now think jobs are easy to get, as the percentage of consumers finding jobs “plentiful” rose from 6.2% to 6.6%. The percentage finding jobs “hard to get” changed more dramatically, falling 11% from 43.3% to 38.7%.

Expectations Index

Consumer optimism about economic conditions in the next six months improved in February as compared to January. The percentage of consumers expecting business conditions to get worse in the next six months dropped 19%, from 14.6% to 11.8%, while the percentage of consumers expecting an improvement in business conditions in the next six months increased 12%, from 16.7% to 18.7%.

In the area of employment, 16.9% of consumers now expect fewer jobs in the next six months, down 11.5% from 19.1% in January. Meanwhile, 18.7% of consumers expect more jobs in the next six months, up 14% from 16.4% the prior month.

The proportion of consumers expecting an increase in their incomes improved roughly 12%, to 15.4% from 13.8% in January.

Source: The Conference Board, Bloomberg News

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Graftech International (GTI)’s adjusted 4Q EBITDA of $75M missed the Street’s outlook of $84.9M.  Guidance for 2012 fell 30-40% short of consensus causing the shares to drop sharply on Thursday and Friday of last week and sent a chill through the steel sector, as some read the lowered guidance as commentary on the steel outlook for 2012.

We suspect that the shortfall was due to some over-optimism from the company.

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

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