Steel Market Production Increases – Republic Steel has broken ground today on a new 1.2 million tpy capacity EAF in Lorain Ohio. The additional capacity will be used to produce SBQ and is scheduled to come online in 2Q13.

Steel Market Production Cuts – Henan Province in China has announced planned crude steel capacity elimination targets of 1.3 million tpy for 2012.

Steel Market Production Increases – China’s Jiangsu Tianhuai Steel Pipe commissioned a 500,000 tpy high grade seamless pipe mill on May 28.

Steel Market Production Cuts – The Chinese province of Fujian has announced annual production capacity elimination targets of 180,000 tpy of crude steel for this year.

Sources: Steel Business Briefing, SteelGuru, PR Newswire, MySteel

RG Steel filed for Ch. 11 bankruptcy protection earlier this morning, and we want to step back and contemplate how the RG Steel failure came about and the impact on the entire sector.

First, credit should be given the men and women of the USW who sacrificed wages to restart this plant, and the private equity folks at Renco and Cereberus who provided the lifeline a year ago.

But the failures that caused this event include:

1. Failed trade policy

- higher cost imported steel surged this year, to a market share of 30%; domestic steel production is still down 10% from pre-recession levels, while Chinese production is up 50%, and global production is up nearly 8% from pre-recession levels. We are the lowest cost producer of steel to the domestic market, and not a ton of the global steel that’s coming into this country could compete on a level playing field.

2. Failed anti-trust policy

- the reason the Sparrows Point piece of RG Steel has changed hands and done the start-stop over and over again all these years was the Justice Department’s mandate that ArcelorMittal sell this facility a half-dozen years ago – in order to “protect” the tin mill buyers from overconcentration. If Justice had allowed Mittal to retain ownership, the Sparrows Point piece of this would have thrived under that ownership, much as other previously bankrupt or near bankrupt facilities – like Bethlehem’s Burns Harbor plant, or National Steel’s Granite City Works or Birmingham Steel’s many facilities have all thrived under new owners, ArcelorMittal, US Steel and Nucor – consolidation works!

3. Failed industrial policy

- private equity – which the administration is demonizing as a campaign strategy – provided the only lifeline for this massive employer.

In terms of steel market impact, we see very little impact from this bankruptcy – a Ch. 11 filing provides protection from creditors and allows companies to operate more easily, as debtor-in-possession financing – new loans granted during Ch 11 – takes precedence in a bankruptcy over existing debt.

Typically Ch. 11 enhances cash flow, minimizes prior existing obligations and allows companies breathing room to operate during a reorganization, so we do not see any benefit to RG Steel’s competitors in the short run.

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According to data from Pipe Logix, May OCTG prices fell 1.4% to $1,887/ton, outpacing last month’s nominal 0.1% decline, as prices for seamless and electric-resistance welded (ERW) pipe decreased by 1.2% and 1.7%, respectively.  The drop was the biggest decline since December 2010, as some 32 out of the 39 individual products were down for the month.

While drilling activity remains robust, the 40% year-to-date rise in OCTG imports is more than offsetting rising demand.  In fact, import market share was 60% for the four months of the year, nearly as high as it was before the landmark Chinese trade case was filed in April 2009. Chinese imports have largely been replaced now with tonnage from Korea, where imports have grown some 167%.

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 Cuts – China’s Henan province has set targets for the elimination of 1.3 million tpy of outdated steelmaking capacity in 2012.

Steel Market Production Increases – Japanese producer Nippon Steel has blown-in the No.2 blast furnace at its Kimitsu works following a reline. The inner volume has been expanded to 4,500 cubic meters from 3272 with crude steel capacity to grow by 700,000 tpy.

Steel Market Production Increases – Korean producer Posco has inaugurated its new 450,000 tpy hot dipped galvanized and galvannealed auto sheet plant in India with operations at full capacity having begun on May 28^th.

Steel Market Production Increases – Chinese producer Bagang, a subsidiary of Baosteel, has commissioned a 400,000 tpy ERW pipe mill in northwest China this month.

Steel Market Production Increases – Chinese welded pipe maker Jiangsu Yulong expects their new 170,000 tpy ERW pipe mill to be online by the end of this year.

Steel Market Production Increases – Azerbijan’s billet and rebar producer Baku has begun construction on two rolling mills with a combined capacity of 180,000 tpy to be commissioned in December 2012 and the first half of 2013.

Sources: Steel Business Briefing, SteelOrbis

Weekly domestic raw steel production declined 0.8% to 1.961 million tons (mt) for the week ending May 26, 2012, falling for the second consecutive week from the post-recession high of 2.005 (mt).  Despite the downturn, production is up 8.9% 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 this week, dropping from 80.0% last week to 79.4%, but was higher than the year-ago level of 73.7%.  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

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While the Chinese steel market rallied early this week in response to Beijing’s announcement of stimulus measures and a 0.3% decline in production, our Advance/Decliner Index sunk from 16% to just 4% last week as overproduction from China combined with a global economic slowdown and declining raw material prices resulted in steel pricing weakness across the globe (any reading below 50 means more price cuts were reported than increases).

Our China Index remained at zero for the fourth consecutive week – just the third time in history this has ever occurred – as steel prices continued to decline despite Beijing’s attempts to soothe economic worries with pro-growth promises.

East Asia was also very weak, and pricing in Europe, the US and CIS declined as well, resulting in our Ex-China Index dropping to a 3-year low of 5% versus 19% last week.

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 – According to estimates from the China Iron and Steel Association (CISA), China’s daily crude steel output for the middle ten days of May fell 0.3% to 2.039 million tonnes from 2.045 million tonnes in the previous ten days.

Steel Market Production Cuts – Kazakh steelmaker ArcelorMittal Termitau is about to stop production on its number 1 blast furnace for maintenance with production scheduled to resume by June 5^th.

Steel Market Production Cuts – Peiner Träger, the sections division of German producer Salzgitter has stopped production on its 900,000 tpy No 2 EAF at its beams mill following damage to the power supply.

Steel Market Production Cuts – Omani rebar producer Hadid Majan has been forced to reduce output due to gas shortages in the country and production has fallen to 1,500 tonnes per month from 5,000.

Steel Market Production Cuts – Iran’s Pasargad Steel has moved the commissioning of its 1.5 million tpy billet meltshop to September from May due to restrictions on foreign advisers imposed upon the country.

Steel Market Production Increases – Gerdau Long Steel North America has completed maintenance ahead of schedule at its 700,000 tpy crude steel capacity Beaumont Texas steel mill. The maintenance began on May 14 and was completed May 23.

Steel Market Production Increases – Kazahk steelmaker ArcelorMittal Termitau is ramping up 3 blast furnaces following a fire on May 15^th. Before the fire Termitau had planned to produce 333,000 tonnes of steel in the month of May.

Steel Market Production Increases – Toscelik Profil, a subsidiary of Turkish steelmaking group Tosyali will restart production at Zeljezara Niksic, its newly acquired 400,000 tpy EAF in Montenegro in the next few months.

Sources: Steel Business Briefing, American Metal Market

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According to the China Iron and Steel Association, Chinese steel production for the middle 10 days of May eased a scant 0.3% from a record 2.045 million tonnes per day (mtpd) in early May to 2.039 mtpd, although even including the decline, the full month would come in some 1.1% higher than April.

We are surprised at how quiet Beijing has been in resisting scolding its errant loss-making steelmakers for overproduction, and in fact has been instead soothing steelmakers’ nerves with promises of new projects and economic growth; we see this backfiring by keeping production levels high.

Typically, at this point in a steel pricing rout in China, we’d be seeing one of two things – first, up until 2009 we generally saw ramp-up of export tax rebates – vigilance by the rest of the world rattling trade sabers has most probably kept Beijing from going this route.  Second, we normally see noise and threats from Beijing about cutbacks.

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Steel Market Production Increases – Pakistani re-roller Abbas Steel intends to commission the 100,000 tpy capacity first phase of its billet plant to feed its rebar and rod mill starting in June. The second phase in early 2013 will bring capacity to 200,000 tpy.

Steel Market Production Increases – Croatian steelmaker Adria Steel has started testing a rebar rolling mill in its Split steelworks.

Steel Market Production Increases – Union workers at Evraz’s Pipe mill in Camrose, Alberta have ratified a new four year labor contract ending the lockout at that facility which began on May 5.

Steel Market Production Increases – ArcelorMittal’s Kazakh unit’s furnaces will begin production again by May 29 following a fire at the sintering plant last week. Production at the plant had slowed to as low as 1,800 tpd from an average of 9,452 tpd.

Steel Market Production Cuts – RG Steel intends to idle its 3.4 million tpy Sparrows Point, MD facility and its 1.4 million tpy Warren, OH facility starting June 4^th as it looks for buyers.

Steel Market Production Cuts – South Russian billet producer Frolovo Volga-Fest has delayed the restart of its 270,000 tpy EAF in the Volgograd region from the beginning of May to July.

Steel Market Production Cuts – Mexican flat steel producer Ahmsa has shut down its 2.3 million tpy number 5 blast furnace along with its No. 2 BOF and a continuous slab caster for 33 days for maintenance.

Sources: Steel Business Briefing, American Metal Market, SteelOrbis