Weekly Market Update - August 30, 2012

Durable goods orders broke out to a new all time high in July, rising 4.2% from June and by 13.1% on a 3 month moving average basis year on year, (Fig 1). Orders were up by $9.4B to $230.7B and are now 39.8% above the recessionary low. Shipments in July, up seven of the last eight months, increased $5.9B or 2.6 percent to $231.1B; this was also an all time high. Transportation equipment, up four of the last five months, had the largest increase in shipments. Inventories, up thirty of the last thirty-one months, increased $2.7B or 0.7 percent to $369.3B. Source, US Census Bureau, August 24th.	Fig 1
European debt crisis and US credit markets. FOMC minutes. August 22nd. “Financial markets remained sensitive to ongoing developments related to the sovereign debt and banking situation in the euro area, and participants continued to view the possibility of an intensification of strains in global financial markets as a significant downside risk to the domestic economic outlook. Several participants indicated that recent trends in euro-area equity indexes and sovereign debt yields had not been encouraging. Nonetheless, participants generally agreed that conditions in domestic credit markets remained more favorable than they were a year ago. One participant pointed out that credit risk spreads--while still above pre-recession norms--may have been boosted by safe-haven demands for Treasury securities and indicated that broader financial market conditions seemed reasonably accommodative. Banks were reported to be seeing an increase in their residential mortgage business along with a continued rise in C&I lending, especially to large firms; consumer credit was also increasing.” The Euro has rallied in the last four weeks and on August 28th was worth $1.2514, (Fig 2). The Euro has declined by 15.7% since its recent peak on April 30th last year.	Fig 2
US total domestic steel supply, all products, H1 2012. Supply is calculated using AISI shipment date, and Census Bureau trade data to subtract exports and add imports. Total supply in H1 2012 was at an annual rate of 111.3 million tons, up 14.1% from 2011. This breaks out to flats up 13.5% and longs up 17.1%. Supply of both longs and flats declined in the single month of June by 11% and 5% respectively, (Fig 3). Comparing H1 2011 with H1 2012 by product for “Longs”, the results confirm other sources in showing that hot rolled bars including SBQ have had the strongest performance, up 35%. Comparing all products, line pipe had the strongest performance, up 44.3%. Hot rolled sheet was only up 3% but cold rolled and HDG were up by 12.3 and 27.6% respectively, (Table 1). Import market share in H1 2012 was 24.1%, highly influenced by line pipe and oil country goods which were 81.0% and 74.3% respectively.	Fig 3
Non residential construction starts. In July the 3 month moving average of the total square footage of starts increased for the sixth straight month and reached a growth rate of 16.5% with positive momentum, (Table 2). Apartments which are included in non residential because they are high rise structures continue to have the highest growth rate. Apartments are likely to become the highest square footage sector, overtaking educational as present trends unfold. The bad news is that the growth rate is much lower than in the last two recoveries. If the present trend continues it will be late 2014 before even the one billion square foot annual rate is achieved, (Fig 4).	Table 2
Net steel imports. In 12 months through June, net imports of Flats, Longs and Pipe in millions of tons were, 2.7, 0.9 and 6.2 respectively. Pipe has a huge distorting effect on total net imports. (Fig 5) Long products have a wide spread of net trade; varying in the last 12 months from wire rod having net imports of 840,492 tons, to heavy structurals having net exports of 858,765 tons. Light shapes were also a net export commodity at 92,189 tons. Rebar, hot rolled bars and cold finished bars had net imports of 212,780 tons, 675,511 tons and 123,416 tons respectively, (Fig 6).	Fig 6
Rotary rig count and oil and gas prices. The Baker Hughes North American rotary oil rig count climbed steadily for three years through August 10th but by August 24th had dropped 24 to 1408. The gas rig count has been on an uninterrupted slide since October 28th last year and is now down by 48% since then, (Fig 7). After declining to $89.22 in June, the Brent oil spot price had recovered to $116.03 on August 22nd which if the price holds, suggests some upside potential for scrap in the next few weeks. Wellhead gas prices are reported with a three month delay by the US Energy Information Administration and had fallen below $2 / 1,000 cu ft in the latest information available, (Fig 8). The lack of economic incentive is driving the decline in operating gas rigs.	Fig 7