CHICAGO ( TheStreet) -- Preliminary February steel imports dropped some 3.7% from January's level reflecting an increasingly strengthening global demand picture combined with near record-low domestic relative prices.

While the report overall was good news, there were a few warning bells. In particular, hot-rolled sheet imports bucked the declining trend, rising some 10.5%. While this seemingly anomalous trend might surprise some -- particularly when taking into account that HRC prices in the U.S. are near all-time relative lows vs. foreign -- it is reflective of the near-panic surge in demand hitting the sheet market today. Buyers began to see "vertical" price increases a few months ago; import orders went out, despite less attractive pricing. We suspect we'll see increased HRC imports in coming months reflecting the same panic late in the year as buyers worried the slow blast furnace restarts would leave them coil-less.

The good news is most evident in beam imports which dropped some 48% in the month clearly reflecting aggressive "freedom fighters" in the marketplace -- port discount pricing -- late in 2009. The data supports the nascent $50 a ton beam price currently in the marketplace.

While virtually all product lines showed some decline, most meaningful on a tonnage basis was the 4.4% drop in semi-finished steel (semis surged in the last few months as blast furnace sheet mills sought to supplement their own supply in the face of slow restarts of blast furnace capacity, which is now happening).

Oil country tubular goods showed a meaningful drop as well, down about 23.6% as strengthening prices overseas kept more pipe in home markets.

Few products showed up with any increases but most notable was a surprising double for reinforcing bar, up 108.7% from January, which was equally reflected in licenses (which we had assumed was a glitch) because domestic rebar pricing relative to offshore is about as low as it's been, ever. Rebar imports had virtually collapsed in the later months of 2009, but we suspect there may be a glitch in the reporting to show this kind of an increase.

Hot-rolled coil showed an unsurprising 10.2% increase. We'd expect that to continue despite the premium price imports this product is carrying due to two factors. First, there is a virtual hot-rolled shortage in the United States right now so buyers are scrambling; the February deliveries of foreign reflect market conditions in late November and early December when there was a virtual "vertical" uptick in demand suddenly ignited. Second, the dramatic price increases in the global market will likely cause prices here to sure further, and even though the normal "discount" for future foreign deliveries is near zero, if HRC buyers believe that prices here will rise further, they'll actually use higher-priced foreign material as a hedge. This happens often in the market.

On a regional basis, the biggest decliners included Canada (down 6.2% as would be expected as USS-Canada sends fewer semis into the U.S.), the European Union (down 13.7%), Australasia (down 16.2%) and South America (down 24%). China dropped 31% in the month; Chinese share of imports dropped to 2.9%.

The only increases were from relatively small shippers, for example India, which represented some 1.2% of all imports into the U.S. last month, jumped 78% on a tonnage basis month-to-month raising share to 2.2%.
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.