Four Weeks into a Decline, U.S. Production Cut Nearly 5% North American steel mills are quietly cutting production in response to decreased order levels evident since early May in response to fears of a surge in imports on the back of a potential slowdown in Chinese steel consumption. Weekly domestic production, as reported every Monday by the American Iron and Steel Institute, has dropped by about 4.8% from a peak of 1.808 million tons (mt) for the week of June 19 to last week's 1.722mt. In contrast to recent cyclical downturns, today's production cuts are actually being implemented more frequently than they are being announced, as mills are more inclined to "walk the walk" these days rather than just talk about them. Worries about charges of "signaling" or other antitrust issues mean that the only mill production cuts that are visible to the naked eye are union-driven WARN notices, and even these are quietly announced. Stark Contrast With Chinese Production The production response in the U.S. is in stark contrast with China, where in the past 12 weeks since steel prices peaked we've seen only a 2.9% production cut despite a far deeper steel price decline, down about double the level in the United States. Production Meaningfully Overstated The weekly production data has an implicit bias at inflection points, so that the current production rate is actually overstated. The industry's operating rate reported on July 10 showing a decline from 74.8% in mid-June to 71.2% is actually only a nominal reflection of reality because about half of the AISI member companies do not report weekly production and operating rates. In these cases, the AISI uses the prior month average production as a proxy. If we assume that companies not reporting "real time" operating rates are cutting at the same pace as the ones that are reporting then the implied operating rate of the North American industry is actually closer to about 68% of capacity, the lowest operating rate since early February. The assumption may indeed be heroic; the only thing we know with certainty is that the domestic operating rate is actually most probably lower than indicated.