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Our Advance/Decliner Index remained stable this week, as a slight increase in our China Index was offset by our Ex-China Index posting a modest drop. While pricing in China declined for all products with the exception of… more
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In an environment of global overcapacity, Chinese steelmakers have been last to reduce production, continuing to make steel at a breakneck pace despite a slowing economy. As a result Chinese steel prices have plunged 13% in the past three months, while exports have risen 31%.
Finally last Thursday, Beijing broke its silence saying that steelmakers need to “curb production and eliminate backwards capacity due to structural problems and retreating market demand.” Tonight the other shoe has dropped, as Beijing is now leaking to the Chinese press that they are “reviewing” increasing export tax rebates on steel, for the first time since… more.
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China Overproducing. In an environment of global overcapacity, Chinese steelmakers have been last to reduce production, continuing to make steel at a breakneck pace despite a slowing economy. As a result Chinese steel prices have plunged 13% in the past three months, while exports have risen 31%.
Beijing Speaks. Finally last Thursday,Beijing broke its silence saying that steelmakers need to “curb production and eliminate backwards capacity due to structural problems and retreating market demand.” Tonight the other shoe has dropped, as Beijing is now leaking to the Chinese press that they are reviewing increasing export tax rebates on steel, for the first time since June 2009, particularly focusing on silicon steel and plate, although later news reports have suggested galvanized sheet and oil pipe could be “on the list.”
Praise/Scold – An Industrial Moral Hazard. NowBeijing’s plan is revealed; clearly the quid-pro-quo for the swathe of production cut announcements we’ve seen in the past week is now being paid for with export tax rebates – subsidies for exporting – in what is most probably a textbook example of state capitalism turned to crony capitalism.
Outlook; Europe, US, Latin America Will Respond – Loudly. Ultimately, we suspect the Chinese will be very limited in their ability to subsidize their steel exports as it’s well known that China is high cost and would likely lose any trade case filed by any government in the world. However, in the short run, any increase in rebates would ramp up exports from China, and create disincentive for the Chinese sector to keep production down. While it’s premature to make any particular assessments, clearly the risk of more dumped/subsidized steel from China is enhanced by these remarks – and steel buyers in the West may react to an increased risk of Chinese exports by deferring their own purchases.
The spot reference price for 62% Fe iron ore cfr North China fell some 7.0% to $116.20 for the week ending July 27, 2012, from $125.00 last week. This marks the third consecutive weekly decline and the lowest price since the week ending December 18, 2009.
For the first quarter of 2012, the iron ore price averaged $141.84, and for 2Q, $139.35; this compares to an average of $176.90 for 1H 2011 and $167.59 for full-year 2011. The post-recession low was $59.10 on March 27, 2009, while the high was $190.19 on February 17, 2011.
Source: The Steel Index
Weekly domestic raw steel production for the week ending July 28, 2012, rose 0.5% to 1.846 million tons (mt) from 1.837 last week and down some 0.6% year-on-year.
We would caution readers that only half of the AISI reporting companies release their weekly production in “real time” so the other half of this data is estimated – using prior months’ reported production & operating rate. What this means is that when the operating rate is rising as it is right now, the weekly data is actually understating the increase.
Capacity utilization also rose from 74.3% last week to 74.7% this week, slightly below the year-ago level of 76.0%.
The lowest production level since the recession began was 800,000 tons for the week of December 27, 2008. The highest level since the recession began was 2.005 mt for the week of May 12, 2012. 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.
Source: AISI and Steel Market Intelligence
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Steel Market Production Cuts – Chinese steelmaker Shagang has scheduled 20 days of maintenance on a blast furnace which will result in a total output reduction of 150,ooo tonnes.
Steel Market Production Cuts – Chinese steelmaker Taiyuan Iron and Steel plans to idle a blast furnace for 20-23 days for a total output reduction of 100,000-110,000 tonnes of lost output.
Steel Market Production Cuts – Chinese steelmaker Nangang has idled a small 40-50,000 tpm blast furnace starting July 25th with no restart date given.
Steel Market Production Increases – Gerdau Special Steel North America announced that it launched the second phase of its special bar quality (SBQ) expansion at itsMonroe,Michiganlocation with the intent of increasing capacity to 800,000 tpy by 2Q13.
Steel Market Production Cuts – Italian steelmaker Riva Group’s Ilva integrated mill, the largest inItaly, is reportedly facing a potential closure over legal documents filed this week regarding pollution from the 11 million tpy capacity mill.
Steel Market Production Cuts – Swedish Steelmaker SSAB plans to halt production at its operations for three weeks over the summer months which will result in the loss of 120-150,000 tonnes of strip products and 30-40,000 tonnes of plate.
Steel Market Production Cuts – Argentinean producer Acindar plans to reduce wire rod output over an initial period of 5 months due to depressed domestic demand.
Steel Market Production Increases – Turkish steelmaker Tosyali Holding is currently gradually restarting its Montenegrin special steel and bar producer Zeljezara Niksic’s EAF with its hot rolling mills scheduled for a restart next week.
Sources: Steel Business Briefing, Gerdau Press Release
The number of active oil and natural gas rigs in theUnited Statesfell 0.6% to 1,924 for the week ending July 27, 2012, down from 1,935 last week and the lowest since August 5, 2011. The rig count is now a scant 0.8% above the year-ago level.
The highest weekly rig count in the United Statessince 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 rose again this week by 3.1% to 338 compared with 328 last week and is the highest count since March 23, 2012. Despite the increase, the Canadian rig count is down 14.4% from the year-ago level.
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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AK Steel announced a widely-anticipated second $40/ton sheet price hike earlier today; we expect peers to… more.
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