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Steel Industry Midyear Update: Key Investor Takeaways

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Part 5
Steel Industry Midyear Update: Key Investor Takeaways PART 5 OF 14

AK Steel to Benefit as US Vehicle Sales Surge

US vehicle sales

In the previous part, we saw how Nucor (NUE) could benefit from higher construction activity. In this part of the series, we’ll analyze how the uptrend in US vehicle sales could benefit AK Steel (AKS). Almost half of AK Steel’s shipments are to the automotive sector, and it currently forms 3.6% of the SPDR S&P Metals and Mining ETF (XME).

Last month, AK Steel announced an investment of $29 million to produce high-strength steel products. These products would help meet the lightweighting requirements of automakers. To strengthen its automobile offerings, US Steel (X) also acquired complete ownership of Double Eagle Steel Coating Company. This plant produces steel products for the automobile industry. The acquisition forms part of US Steel’s Carnegie Way transformation.

AK Steel to Benefit as US Vehicle Sales Surge

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US vehicle sales surge past 17 million mark

Previously, we found that in recent months, housing indicators have approached their pre-crisis levels. However, the automobile industry achieved this feat just last year, with sales at the highest level since 2006. Now, the industry is set to better its performance this year and looks like it will hit the 17 million mark.

The above chart shows the US vehicle sales since May 13. For two consecutive months, sales have been more than 17 million SAAR (seasonally adjusted annual rate).

ArcelorMittal would benefit from higher vehicle sales

Looking at the current momentum, vehicle sales could easily surpass the expected 17 million mark this year. ArcelorMittal’s (MT) North American operations would also benefit from higher US vehicle sales.

Interestingly, while the demand from AK Steel’s core end market is strong, the stock has languished on Wall Street. The stock hit its 52-week low on June 7. The company’s huge debt burden is a possible reason for its underperformance.

The energy sector is another major steel consumer in the United States. In the next part, we’ll analyze how steel demand from the energy sector is shaping up.

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