Steel Imports Hit 15-Month High

Preliminary April imports continued to rise some 5.2% from March led by a surge in oil country tubular goods imports.
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NEW YORK (TheStreet) -- Preliminary April imports continued to rise some 5.2% from March -- led by a surge in oil country tubular goods (OCTG) imports, up some 32% from March -- for the highest level in over a year.

While demand for steel in the U.S. for energy applications is rising in general, clearly imports of OCTG are increasing at a faster clip than domestic, indicating the loss of some domestic market share, a worrisome trend.

We saw increases in the month also in beams, up nearly 80% from March preliminary imports, and rebar which was a double from the previous month. We saw a meaningful decline in hot-rolled sheet -- down 9%. Total imports were the highest since January 2009, a disappointing trend considering that when most of this steel was ordered, the total cost of the imported material for the most part was higher than domestic.

We are increasingly concerned that while April import penetration reflects strong demand from early January, as steel prices globally have hit a tipping point, the U.S. market becomes a "natural" destination for higher-cost foreign steel, since the U.S. is the world's largest net importer. We would expect to see a rise in import quotation in tandem with lower pricing over the coming months and expect this to impact domestic pricing overall.

In our view, all of this is in response to a change in the market psychology in China -- not a fundamental change -- as steel is a highly speculative market in that region, unlike most of the rest of the world where fundamentals typically do dominate, unlike "screen-traded" metals. So we believe that this rout will be short-lived and we would expect to see imports retrace these increases in coming months on the back of stronger demand and pricing elsewhere.

Michelle Galanter Applebaum spent more than 20 years as a managing director at Salomon Brothers in New York and was the No. 1-rated steel analyst from 1988-2003, according to Institutional Investor magazine. In 2003, Ms. Applebaum formed Steel Market Intelligence, a 5-person Chicago-based equity research boutique providing advisory services to institutional investors. In addition to publishing 10-15 reports/week, Ms. Applebaum sponsors numerous CEO-level meetings for her investor clients during the year. She is regularly quoted on Bloomberg, Dow Jones, The New York Times and makes frequent appearances on CNBC and other news programs. Ms. Applebaum lives near Chicago with her husband, visiting children and 2 dogs.