U.S. Production Capacity, Imports and Inventories U.S. Production - Weekly U.S. steel production in mid- February was reported at 1.083 million tons, with 45.4% capacity utilization, as compared to 800,000 tons, at 33.5% capacity utilization, during Christmas week in December 2008 (Figure 1). Capacity utilization for all of December averaged 40.9% with the production of 4.319 million tons (Figure 2), the lowest monthly production level for U.S. mills in almost 40 years. Some individual utilization rates in the United States for 4Q08 include Steel Dynamics’ Flat Roll division at 55-60% and its Structural division at 45%, Nucor at 48%, and United States Steel Corporation at 45%. Worldwide December production of 84 million tonnes was at 67% capacity utilization (60% when assuming 15 mil- lion tonnes of new capacity have come on-line recently), as compared to May 2008, when 120 million tonnes were produced globally using 95% of the worldwide capacity (Figure 3).

Imports and Exports - December imports declined to 2.067 million tons, the least amount of imported steel since December 2007 (Figure 4). However, even with this low import activity, December imports accounted for a market

share of 36% due to low domestic production (Figure 5). Nearly all categories of imports declined in December except the “other” category in finished imports, which

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increased only by 7,000 tons, and the “bloom, slabs, billets” category in semi-finished imports, which increased only 31,000 tons (Figure 6).

Inventories - Service center inventories continued their decline, down to 8.481 million tons reported in January 2009 (Figure 7). Average daily shipments to end-users were 123,800 tons (Figure 8), up from 107,900 one week earlier, the lowest since recordkeeping of this parameter began in 1987. Likewise, daily receipts remain historically low (Figure 9), as both service centers and end-users attempt to lower inventories. Even at this low activity, centers cur- rently have 3.4 months’ supply on hand (Figure 10), more than is desirable to stock. In order to bring this value into line with the 5-year average of 2.6, inventory needs to drop another 2.5 million tons, or demand has to increase by 40% from December levels. Neither of these actions will likely occur alone in the short term, but some combination of the two may help to work this inventory down to a more comfortable level.

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U.S. Demand Automotive - Automobile sales in January were off 38.4% year-on-year, on a trailing 3-month average basis, with the January total trailing 3-month number of vehicles sold dropping to 1.70 million (Figure 11). At the same time while January trailing average production was off 42.1% year-on-year, easily the most significant drop in many years the total trailing 3-month number of vehicles produced was 2.03 million (Figure 12), still more than the number sold.

Construction - Non-residential construction spending has leveled off, with each month’s year-on-year change while positive, showing a downward trend (Figure 13) Meanwhile, infrastructure spending is the highest it has been in the past 10 years in absolute terms and shows mod. est positive year-on-year % change (Figure 14).

Energy - Consumption of oil country tubular goods con tinued to increase in 3Q08 as the number of oil rigs in pro duction leveled out between 3Q08 and 4Q08, indicating a lag in reporting of rig count data versus consumption data (Figure 15).

Non-Defense Capital Goods - New orders for machinery and capital goods trended down in the latest snapshot of

the sector and may very well turn negative in terms of year- on-year change by the next reporting period (Figure 16).

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Industrial Production Index - The Index of Industrial Production, a broad-based indicator of real production output, and by extension an indicator of steel demand, turned down sharply, with year-on-year change data report- ing the most negative value in nearly 25 years (Figure 17).

ISM Index - The Institute of Supply Management (ISM) Index moderated slightly to 35.6% in January, compared to the low point of 32.4% in December, but still indicates a strong trend toward business contraction (Figure 18).

U.S. Pricing and Costs Steel Pricing - U.S. HRC prices were reported to be $509 in January 2009, while HRC prices in the European Union and China were $600 and $548, respectively (Figure 19). CRC and coated prices also declined in January, and stand at $607 and $679, respectively (Figure 20). Steel prices since 2001 have shown significant volatility (Figure 21). Goldman Sachs economists have plotted the last four steel price cycles (Figure 22). Cycle 4 (December 1999 through December 2001) was characterized by financial crises in Asia and Russia that led to import dumping in the United States, where demand was already weak, ultimately caus-

ing a near-collapse of the U.S. steel industry, with many bankruptcies and a very low $210 price tag for a ton of HRC. Strong import-reducing anti-dumping tariffs, U.S.

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and global industry consolidation, and a peak HRC price of $410 marked Cycle 3 (December 2001 through July 2003). Cycle 2 (July 2003 through August 2005) saw rising inventories as hedge buying proliferated, with HRC prices ranging from $756 in September 2004 to $435 in August 2005, and nowconsolidated mills exercising production discipline for the first time. Cycle 1 (August 2005-present) experienced an historic high HRC price of $1,068 in July 2008 as global demand soared and construction boomed in the Middle East and BRIC, but now has found an apparent bottom of $500 on the strength of unprecedented produc- tion cuts worldwide.

Scrap Prices - Scrap prices increased modestly in January, with bundles up $29/ton at $256 and #1 heavy melt up $24/ton at $200 (Figure 23). January margins for flat roll products vs. bundles fell $85/ton to $253 (Figure 24), while January margins for long products vs. #1 HM fell $75/ton to $369 (Figure 25, on next page).

Capex Spending - In the face of lower production, sales and profits leading to “belt tightening,” steel producers have reigned in capital expenditure programs an aver-

age of 26% across the board for 2009 (Figure 26, on next page), with Nucor announcing the largest decrease in

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spending of 6l%, from $1.019 billion spent in 2008 to $400 million planned to be spent in 2009. Others reporting reduced capex spending include (in millions), AK (-$35 or -16%, at $180), Allegheny Technologies (-$66 or -13%, at $450), CMC (-$35 or -9%, at $337), United States Steel Corporation (-$156 or -17%, at $740) and Steel Dynamics Inc. (-$162 or -39%, at $250).

SteelBenchmarkerTM (Figure 27) pricing indicates Chinese HRB ex-works price for Feb. 23 plummeted 8.6% to $436

per tonne, for the second consecutive time. The world export HRB price dropped 5.1% to $444 per tonne, FOB the port of export, for the third consecutive time. The Western European HRB price dropped 3.2% to $511 per tonne (on a Euro basis, it fell 1.5%), ex-works, for the 15th consecutive time. The U.S. HRB spot price slipped 0.7% to $550 per metric tonne, FOB the mill, for the 14th consecu- tive time.

Iron & Steel Technology wishes to thank Goldman Sachs Global Investment Research and SteelBenchmarkerTM for sourcing the majority of data presented here. Information is compiled by

Comments are welcome. Please send feedback to: industrystats@aist.org. Theodore J. Leczo, steel industry consultant.

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