A Deeper Dive into May 2016 Steel Industry Indicators

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Part 3
A Deeper Dive into May 2016 Steel Industry Indicators PART 3 OF 11

US Steel Demand: Looking Decent So Far in 2016

US steel demand

Steel demand is a key driver of steel companies’ performances. In this part of the series, we’ll look at the recent US steel demand indicators of the nonresidential construction, energy, and automotive sectors.

US Steel Demand: Looking Decent So Far in 2016

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Nonresidential construction

The Architectural Billing Index (or ABI) is a leading index of nonresidential construction activity, 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. The 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. The ABI stood at 50.6 in April. Although this is lower compared to what we had in March, the ABI has managed to stay above 50 in three out of the four months so far this year.

Higher architectural billing is positive for future steel demand. Steel companies, including Nucor (NUE), Gerdau (GGB), and Commercial Metals (CMC) rely heavily on steel demand from the nonresidential construction sector.

Energy and automotive

Vehicle sales have also been strong so far in 2016. According to Wards Auto, US light vehicle sales increased to 17.3 million units SAAR (seasonally adjusted annual rate) in April. However, the general market mood seems to be that we could see sales plateauing after years of rapid growth.

However, the energy sector’s steel demand continues to lag. With the steep fall in energy prices, exploration companies have taken the slow road on drilling activity. What’s worse, some such as Freeport-McMoRan have cancelled their existing rig contracts. Steel companies that supply the energy sector (VDE) have been negatively impacted as a result. United States Steel (X) and Tenaris (TS) are among the major steel suppliers of the energy sector.

Meanwhile, the US housing sector continues to grow at a decent pace, as we’ll see in the next part of the series.


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