Steel Business Briefing SBBâ€™s weekly

April 10, 2009 (Issue 7-09) 1 © Steel Business Briefing 2009

US mills have filed antidumping and countervailing duty petitions against imports of Chinese OCTG with the US International Trade Commission (ITC). Seven US producers and the United Steelworkers union allege that Chinese producers have been benefiting from enormous government subsidies and dumping at 40-100% margins. The petitioners claim cheap Chinese imports have bloated inventories and forced a large portion of the domestic industry to shut down (see other story on page 5). Critical circumstances are also alleged in the case, as the petition claims the Chinese industry created "an export surge in the second half of 2008 after being alerted by the Chinese government that a trade case was likely." If the US Commerce Department affirms this, and the case is sanctioned by the ITC, duties could be applied retroactively to a 90-day period prior to Commerce's preliminary duty determinations. These determinations are set for September 7 in the subsidy case and November 6 in the dumping case. The ITC will make a preliminary injury determination by May 25. Coincidentally, the European Union imposed provisional AD duties on imports of seamless pipe from China, including OCTG. The US case covers both seamless and welded OCTG, including casing, but excluding drill pipe.

Published weekly by Steel Business Briefing, the industry’s quality news service

Top News

Chinese OCTG targeted in new trade case

Numbers of the week US mill production dipped below 1m tons last week, as mills worked at about 40% of capability.

A 1,700-mile pipeline project is being planned in North America.

North American Stainless is increasing base prices of stainless longs by $0.05/lb.

US mills allege China has been dumping OCTG into the US market at rates of 40-100%.

Contents Steel Price Heat Map 2 Market Watch 3 Industry News 4-5 Week in Focus 6 Profile: Cascade Steel 7

Scrap falls, surcharges come off Scrap prices used by mills to set monthly surcharges in the US market have fallen below the threshold for activation of the levies, meaning there will be no surcharges on May deliveries of many products. Nucor and others use a published shredded scrap price to set surcharges on certain longs and plate. They kick in when the price for shredded is above a $162 per long ton threshold. That price is now $155/l.ton - below the threshold, and down $30/l.ton from last month's price of $185/l.ton. Similarly, the scrap grade Nucor uses to set monthly surcharges on its contract sheet sales, No 1 busheling scrap, is below the surcharge threshold at $160/l.ton. The trigger price is $170/l.ton.

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Assuming it doesn’t have weights tied to its legs, the US economy should eventually resurface. But for now it is like a non-buoyant person shoved into the deep-end.

When sinking in 12-feet of water, it’s often best to go all the way to the bottom, so you can bounce off it. That is what the non-buoyant steel market is trying to do. The bottom may be close, but it’s still not there, as evidenced by continuing price declines.

You can only wait so long before you run out of oxygen – in this case cash. And once you decide you’re not going to make it to the bottom in time - to spring back up – you have to frantically work to get back to the surface, to save your life.

This is the phase we are likely entering. And it could get ugly. Some in the market are speculating there will be permanent closures of antiquated mills and weak service centers by the end of this year.

But, to torture the analogy further, people usually make it back to the surface, take a big gasp of air and move on.

Then again, you could die and eventually float to the surface, only to be picked apart by vultures. In this case the cyclical steel industry will once again confront the circle of life.

Tom Balcerek Editor - American Steel Review [email protected]

That sinking feeling

Late News ■ ArcelorMittal Montreal is closing

its Contrecoeur mill for six months.

■ The AIIS has responded to the trade case filed against Chinese OCTG, calling it “ill-advised.”

■ UBS analysts say US mills won’t rise above 60% of capacity utili-zation until 2010.

SBB’s weekly April 10, 2009

Big WF beam decreases Nucor and Nucor-Yamato have made big cuts in published wide flange beam prices to reflect a deterioration in market transaction prices. The price cut on commodity WF beams amounts to $154/ton, putting the new list price at about $695/ton, fob mill. Steel Dynamics Inc said it will implement the same reduction, as well as suspend its raw materials surcharges “until further notice,” also putting its list price at $695/ton fob, effective immediately through May 31. In a letter to customers seen by Steel Business Briefing, SDI promised customers it would continue to provide competitive pricing “whenever challenged by you to do so.”

Scrap tumbles further

$140

$625

long

ton

$700 $600 $500

$300 $200 $100

31 M

ar 0

8 19

May

09

7 Ju

l 08

25 A

ug 0

8

13

Oct

08

1 D

ec 0

8 19

Jan

09

9 M

ar 0

9

Shredded scrap; N.America domestic delivered mill

Source: SBB Steel Price Analyzer

$400

6 A

pr 0

9

Editor’s Comment


Nucor is cutting its May transaction prices for merchant bar and light structurals by $40/ton. Nucor will maintain rebar transaction prices for May deliveries (see story on page 3). Nucor and SDI are cutting WF beam list prices by $154/ton (see story on page 1).

Stainless Scrap

price change w-o-w

1. Rebar / Mexico domestic delivered $540/ton +$59 +12%

2. Nickel / LME cash seller + settlement $4.85/lb +$0.34 +8%

3. Rebar (TMT) / India domestic ex-works $616/ton +$38 +7%

3. Wire rod (mesh quality) / Latin America export FOB port

$427/ton -$86 -17%

2. HDG / Turkey import CFR Turkish port $499/ton -$136 -21% 1. HMS scrap 1/2 / North America domestic delivered mill

$118/l.ton -$32 -22%

Spring thaw has yet to warm up prices

SBB’s American Steel Review Published weekly by Steel Business Briefing, the industry’s quality news service

Falling

Rising rapidly

Prices stable

Longs

Surcharges on stainless flats are falling again for May from producers AK Steel, North American Stainless, and ATI Allegheny Ludlum. The surcharge on austenitic type 304 will be about $0.34 per pound – a decrease of about $0.05/lb ($100/ton) from April. Austenitic series 316 will see its surcharge fall about $0.06/lb from April to $0.51/lb in May. The surcharge on ferritic type 430 will be $0.10/lb, down a little less than $0.02/lb. North American Stainless is increasing base prices on stainless long products by $0.05/lb ($100/ton). This in-cludes all angles and round bars, effective with May 1 production orders.

HRC is selling for about $400-440/ton, with major mills on the higher end of this range.

* Prices based on midpoint of price range

Top global price movers of the week* price

Domestic scrap prices have fallen further. Shredded scrap is currently around $140/long ton, delivered, while #1 busheling is selling for about $145-150/l.ton. Plate/structural scrap is around $160-165/l.ton and HMS 1 & 2 has fallen to $110-125/l.ton. US scrap export prices are substantially higher than domestic prices. HMS at east coast ports is selling for $170/long ton and plate/structural scrap is at around $180/l.ton. On the west coast, domestic shredded scrap sold for $220/l.ton delivered to a local mill.

Flats



Market Watch

Prices erode further US sheet market sags, but turnaround could be sudden Market sources may not know the direction of collapsed US sheet prices, but they believe when the market turns around it will happen suddenly. They also believe that the turnaround will not come in the next 30 days, and some believe it will take as long as three quarters. Sources said fob mill hotrolled coil prices are roughly $400-440 per ton, with major mills at the higher end of the price scale. That is down from $460-480/ton a month ago, $500-520/ton two months ago - and $1,000/ton a year ago. Prices have crept down relatively slightly over the past couple weeks, allowing for some mild optimism. "We think it's great that prices are not coming down more," said one buyer. He rejected a trader's assertion that some second tier US mills are now selling HRC for less than $400/ton - as did other buyers. "I wouldn't say it's impossible, but I haven't seen it," said one. Stockists see few signs of life among end users, with the possible exception of fabricators, and say service centers are still destocking and buying from mills on an as-needed basis only. However, they believe the suddenness of an eventual turnaround will catch the market by surprise. "It's going to bust open - everyone's going to run to the mill at the same time," said a service center executive. Mill moves could make beam destocking even more painful The big list price cuts implemented this week by two of the three leading North American wide flange beam producers likely won't sit well with domestic stockists already holding over-priced inventories. Both Nucor and Steel Dynamics Inc announced they would slash WF beam list prices by $154/ton, putting them roughly in line with post-discount transaction prices and taking medium-size beams to $695/ton.

One long-time northeastern trader said he is aware of stockists who had been lobbying domestic mills "not to drop the list price because now they must destock additional inventory to please their financial guys. "They claim that this price move will only delay the recovery process," he said. "In addition, service centers will now be obligated to devalue their inventory further, and this will not help the financial situation for many of them who are already struggling and could result in some casualties." Still, the source said there are subtle signs emerging that could signify an impending turnaround, albeit a slight one. "A slow recovery is possible in the second half, and we already see global markets starting to stabilize and even slightly rise in a few regions. If driving factors continue to improve, demand should begin to slowly recover by this summer," he said. "I believe we are starting to see the light at the end of the long tunnel - maybe only a dim night light, but at least some light." Nucor maintains rebar prices, drops MBQ prices Nucor is once again cutting prices on merchant bar and light structurals while maintaining its prices on rebar. On rebar, there is no raw material surcharge (RMS) being applied because the benchmark shredded scrap price fell below the surcharge trigger this month. The resulting $23 per ton decline was offset with a $23/ton base price increase, keeping Nucor's rebar transaction prices flat for May deliveries. As for merchant bar and light structurals, overall pricing will drop $40/ton - the combination of a $17/ton base price decrease and the removal of the same $23/ton scrap surcharge that is being applied to this month's deliveries. This is the second month that rebar prices were maintained while merchant bar transaction prices decreased. In March, merchant bar prices were reduced by $30/ton.


Industry News Iron and Steel Making

■ Weekly US mill production dipped below 1m tons again last week, coming in at 965,000 tons according to an American Iron and Steel Institute estimate. The output was down 4% from the prior week, when the total was about 1m tons, and off 55% from the same week last year when 2.15m tons were produced. US mills worked at only 40% of their capability last week, down from 42% the prior week and 90% the same week last year. American mills are entering the fifth-consecutive month of production below 50% of their capability.

Raw Materials ■ Many in the US market believe the bottom has

been reached with April scrap prices (see page 2). Some say May prices will most likely recover and supersede April’s price drop with a $50/long ton gain. Mills are operating at higher rates, demand is improving, and finished steel destocking appears to be winding down, mill sources tell SBB. Scrap demand is expected to exceed supply next month due to low flows into scrap yards. Scrap exports are expected to tighten US supply as well.

■ Patriot Coal has announced more mine rationalizations to bring 2009 production in line with anticipated sales volumes. The latest moves will cut this year’s production by another 2m tons. Patriot has already closed one metallurgical coal mine with nearly 1m tons/year of capacity in West Virginia. The company now plans to idle two contract metallurgical mines serving the Wells complex in southern West Virginia.

■ Schnitzer Steel Industries posted a net loss of $7m for its fiscal second quarter ended February 28 because of continuing weak demand for raw materials and finished steel products. Schnitzer’s average ferrous scrap prices were $253/long ton in the quarter, down from $326/l.ton in the year-ago quarter, while ferrous volumes were down to 1.08m l.ton from 1.13m l.ton in the same comparison.

Flats ■ AK Steel’s Rockport, Indiana sheet rolling and

coating operations will be idled for at least a week. A United Auto Workers union official said 140 out of 190 union employees would be off

the job this week due to a shortage of orders. The plant has been temporarily idled in November, December, January and February, but “March was a little bit more stable.”

Longs

■ Oregon minimill Cascade Steel, posted an operating loss of $6.4m in its second fiscal quarter ended February 28. This compares to an operating loss of $31m in the prior quarter and an operating profit of $13.2m in the year-ago quarter. Sales volumes were down 16% from the prior quarter to 82,703 tons, while the unit’s average selling price fell 34% to $570/ton. Rebar shipments were up 21% from the prior quarter to 56,590 tons, while coiled long product shipments fell 57% to 19,330 tons. The company shipped 6,780 tons of merchant bar, up about 9%.

■ Despite a 22% increase in revenue and a 5% increase in sales volume, Canada-based wire producer Tree Island reported a net loss of $65m for full-year 2008. Revenue was $323m for the year and sales volume increased to 237,190 tons, but the fourth quarter was negatively impacted by the weak residential construction market and the global recession. Tree Island, headquartered in Richmond, British Columbia, expects the residential construction and industrial/OEM markets to remain weak throughout this year.

Pipe & Tube ■ A North American pipeline project, that would run

from the Alaska North Slope region to southern Alberta, Canada, is projected to use 1,700 miles of 48-inch x80 high pressure pipe – 1.1m tons from the US and 1.4m tons from Canada. Deepa Poduval, principal consultant from Black & Veatch – a US engineering, consulting, and construction company – said pre-construction work on the pipeline is projected to start next year, with service expected to begin in 2020.

Service Centers ■ Cleveland-based service center chain Olympic

Steel has cut roughly $65m in 2009 operating expenses in response to weak market conditions. The company said it will also be required to report a “lower of cost or market” pre-tax charge for inventory devaluation of roughly $30m – about 12% of its March 31 stocks.

End Users ■ More than 600 union workers have walked off the

job at National Steel Car Ltd (NSC), Canada’s only manufacture of new railroad freight cars. After several weeks of negotiations, employees represented by the United Steelworkers (USW) union Local 7135 voted to strike, effective April 5, the company said in a statement. It had been seeking a 25% reduction in the employees’ wage and benefit package, which is currently about

Industry news continued on next page


Week Ended

Production in tons

Change w-o-w

Change y-o-y

Capability Utilization

Apr. 4, 2009

965,000 -4% -55% 40.4%

Estimated US Raw Steel Production

Source: American Iron & Steel Institute


C$31/hour total (US$24.97) under the expired contract.

■ G&G Steel, an Alabama-based fabricator of metal components for large-scale industrial and infrastructure projects, will locate a new fabrication facility in Tishomingo County, Mississippi. The Mississippi Development Authority provided $650,000 in grants to assist with public infrastructure and building improvements for the project. Tishomingo County also provided $300,000 for public infrastructure needs.

Trade ■ The seven US producers that filed trade cases

against imports of OCTG from China make up 90% of US production and believe the antidumping and subsidy cases are necessary to stop a surge of OCTG imports from China. "Without the filing of this case, the Chinese producers will continue to flood the market with their unfairly traded product, causing further material injury to the domestic industry," said a petitioners' statement. The petitioners are TMK Ipsco, V&M Star, US Steel, Wheatland Tube, Maverick Tube, V&M TCA, Evraz Rocky Mountain and the United Steelworkers union. Chinese OCTG shipments to the US have increased noticeably in recent years and into 2009, peaking in November 2008 at 367,380 tons.

■ In an expedited five-year sunset review of the countervailing duty on prestressed concrete wire strand (PC strand) from India, the US Department of Commerce made a final determination that

Industry news continued


revocation of the order would likely lead to continuation or recurrence of imports subject to a substantial CVD for subsidies. The US International Trade Commission will now take up the issue of injury to the domestic industry and will have the final say in the case.

■ The US Court of International Trade has ruled in favor of the US Department of Commerce in a second remand determination case brought forward by Thailand’s GJ Steel Public Co (formerly Nakornthai Strip Mill Public Co). GJ Steel was challenging the DOC’s use of the invoice date, instead of the contract date, to determine the antidumping duties placed on its exports of HRC. GJ Steel had an AD rate of 3.86% from 2001 to 2007, but in an administrative review in 2007, covering the one-year period ended October 31, 2005, Commerce recalculated the AD rate at 8.23%.

Quote of the week “Over the last two years, US pipe

producers have prevailed in AD and CVD cases in four different pipe and tube trade

remedies cases against unfairly traded imports from China – circular welded pipe,

light walled rectangular tubing, small diameter line pipe and welded stainless

pressure pipe. I am confident the domestic industry will

prevail in this case, as well.” -Roger Schagrin, attorney for US mills engaged in unfair trade

cases against OCTG imports from China

Statistics are now available showing imports for the first quarter of this year (using final January imports, preliminary February numbers, and import license applications for March) and several trends have emerged. When compared with the previous three quarters, there were several notable import increases and decreases, from country to country (see charts below). Mexico has been sending more sheet to the US, but less semis. And while Russia is sending more OCTG, Canada’s OCTG shipments have been decreasing in recent months. Turkey’s hotrolled bar exports to the US were negligible in 2008, spiked early this year, but fell back again in March.

OCTG - Russia HR bar - Turkey HRC - Mexico CRC - Mexico

Apr.

08

May

08

Jun.

08

Jul.

08

Aug.

08

Sep.

08

Oct

. 08

Nov

. 08

Dec

. 08

Jan.

09

Feb.

09

Mar

. 09

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

tons

Notable Q1 import increases

Trade Watch

Notable Q1 import decreases

200,00

150,00

100,00

50,000

0

tons

OCTG - Canada Semis - Mexico Semis - Canada HR bar - China

HRC - Australia 250,00

Apr.

08

May

08

Jun.

08

Jul.

08

Aug.

08

Sep.

08

Oct

. 08

Nov

. 08

Dec

. 08

Jan.

09

Feb.

09

Mar

. 09



The Steel Index’s latest results for the week ended April 5 show lead times for HRC have fallen to 3 weeks and for CRC are down to 4.8 weeks. Lead times for HDG remain steady at 5 weeks but actually rose slightly for plate to 4.7 weeks.

TSI, which is owned by Steel Business Briefing, is the i n d u s t r y ’ s w e e k l y r e s o u r c e f o r independent steel and iron ore reference prices. For more information visit www.thesteelindex.com.

The Week in Focus:

Economist sees positive signs Economist Lawrence Chimerine sees the bottom of the US market beginning to take shape. “I can’t promise that the worst is over but the bottom is forming,” attendees at the Metals Service Center Institute’s specialty metals conference were told last week. Favorable currency trends, stabilized oil prices and lower mortgage rates are all positive indicators for US markets. Furthermore, recent data shows that automobile, restaurant, airline and retail business decline rates are slowing. “The Feds are right on,” and have done “everything 100% correct thus far,” Chimerine said of the new Obama administration's handling of the US economic crisis so far. Nonetheless, he stressed the significance of fear and apprehension in the American market. Job losses and bleak economic outlooks are prompting people to save their money instead of spending it. Chimerine believes stable consumer confidence needs to return before any part of the economy recovers. ISM end user survey also suggests US could be near the bottom A steel buyer survey conducted by the Institute for Supply Management is giving mixed signals, suggesting the bottom of the US recession may be near, as sentiment is improving slightly. But the survey also shows that times are still tough. The March survey suggests shipments are improving somewhat. About 24% of respondents reported that shipping levels are up from three-months ago. Only 6% indicated this last month. Nearly 94% of users in February said shipments were down in the same comparison. Only 53% said this in March and 23% said shipping levels are the same. End user pricing may also be improving, the survey

suggests, as 6% (up from 0%) reported firm selling prices. Some 47% said prices are competitive; 29% said prices are weak and 18% reported very weak selling prices. Nearly half of respondents said their sales and production trends for the next six-months are expected to remain relatively flat (up from 25%), while fewer are expecting business to decrease further - 41% in March compared to 56% in February. Problems persist for steel buyers, however, as more are reporting that customers are paying them less promptly. Some 47% said this in March (up from 38%) while the remaining 53% said they are being paid about the same as three-months ago. Those reporting workforce on short time or layoff increased to nearly 94%, SBB notices, up from 87% in February. Rate of decline in US construction spending slowing down February US construction spending of $967.5bn was just 1% below January's level of $976.2bn – a sign that the rate of decline in that segment's spending is slowing down. Still, February's spending was 10% lower than the almost $1.08bn in the same month last year, according to information released by the US Census Bureau. Residential construction spending of $282.6bn accounted for about 30% of February's total, while nonresidential construction was about 70% of the total - at $685bn. Residential construction was down about 4% from $294.7bn in the month of January, while nonresidential increased slightly from $681.5bn, according to the Census data.

$563

$549

$526

$622

March March March Mar. 30 - 9-15 16-22 23-29 Apr. 5

$609

$593 $585

TSI’s HDG coil reference price ($/ton fob US Midwest mill)

Is the bottom of the downturn near?



For more information, visit: www.cascadesteel.com

A brief history of Cascade Steel

Cascade Steel What is Cascade Steel? Cascade Steel is a mini-mill headquartered in McMinnville, Oregon. A subsidiary of Schnitzer Steel, the producer focuses on longs production, primarily serving the western US. What does Cascade Steel do? Cascade produces a wide range of hotrolled products such as rebar, coiled rebar, wire rod, merchant bar and some specialty products. Its main customers are service centers, fabricators, and wire drawers.

What is the company’s financial position? For its second fiscal quarter ended February 28, the company posted an operating loss of $6m, down from $13m in the comparable year-ago quarter. Quarterly sales of $52m were down 64% y-o-y from $143m. Volume sold in the quarter was about 82,700 tons compared to 202,000 tons in the year-ago quarter.

Why is the company interesting?

■ Cascade is the only US mill listing grape stakes in its product mix. It's proximity to the burgeoning wine regions of California and the Pacific Northwest made this a strong niche product for the steelmaker, especially when some winemakers discovered that having a little Fe in the soil gave the wine a certain je ne sais quoi.

■ Cascade is one of only a handful of West Coast melt shops due to the strict environmental laws of the region. In fact, all of the region's scant raw steel production was put in place prior to the imposition of the famously tough emission standards.

■ While Nucor and Steel Dynamics made big news just recently with the acquisition of huge scrap holdings, Cascade was acquired by West Coast scrap giant Schnitzer a quarter century ago.

Cascade’s five-strand continuous caster

1968 Founded in McMinnville, Oregon.

1984 Acquired by Schnitzer Steel Industries.

1986 Completes rebuild of rolling mill #1.

1996 Completes construction of rolling mill #2.

2004 Completes construction of a new 108-ton electric arc furnace (EAF) in the melt shop.

2004 Schnitzer considers selling Cascade Steel, but ultimately decides against it.

1969 Ships first finished steel products.

Straight rebar bundles in Cascade’s warehouse


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