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The steel industry is not in the best of health

PART:
1 2 3 4 5 6 7 8 9 10 11 12 13
Part 6
The steel industry is not in the best of health PART 6 OF 13

Architectural Billing Index falls – not good for steel producers

Nonresidential construction

In the previous part, we saw the demand indicators of residential construction. Now we’ll look at the indicators of nonresidential construction activity. Nonresidential construction accounts for almost two-thirds of total construction spending in the United States.

This includes both public and private spending. Nucor (NUE) and Gerdau S.A. (GGB) are leading suppliers to the nonresidential construction industry. One of the indicators analysts track for nonresidential construction is the Architectural Billing Index.

Architectural Billing Index falls – not good for steel producers

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Architectural Billing Index

The Architectural Billing Index is based on a survey of architects. The participants are asked whether their billing increased, decreased, or stayed the same in the month. A value above 50 indicates an increase in billing. This index serves as a leading indicator for the nonresidential construction industry.

Simply put, an increase in architectural billing means more buildings are expected to come up in the future. Higher construction activity leads to higher demand for steel products such as rebars, joists, and girders.

Index falls

The above chart shows the trend in the Architectural Billing Index. As you can see, the index fell below 50 in the latest reading in January. The index was 52.7 in December 2014. The fall in the Architectural Billing Index is negative for steel producers such as U.S. Steel Corporation (X). Currently, U.S. Steel forms 2.86% of the SPDR S&P Metals and Mining ETF (XME).

The index was above 50 for eight months in a row. Investors should watch the reading for a few more months to know if the trend reverses.

The automobile sector is the second biggest consumer of steel. ArcelorMittal (MT) and AK Steel (AKS) are major suppliers to the automobile sector. In the next part, we’ll look at the indicators of the US automobile industry.

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