How Is US Steel Demand Shaping Up for Cliffs?
US steel demand
Since US steel demand is the major driver behind steel companies’ volumes and prices, it’s vital for Cliffs Natural Resources’ (CLF) investors to track this data. The construction sector is the leading steel consumer in the US (SPY). It accounts for ~40% of the total steel demand. It includes both residential and non-residential construction.
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Residential demand indicators
Building permits and housing starts act as leading indicators of residential construction activity. Building permits rose 0.3% in October 2016.
Housing starts also rose 25.5% to a seasonally adjusted annual rate of 1.32 million units in October 2016—the highest level since August 2007. The data exceeded analysts’ forecast.
The ABI (Architectural Billing Index) is a leading indicator of non-residential construction spending and is based on a survey of architects. A value above 50 indicates an increase in billing. Higher architectural billing generally translates into increased future construction spending. The index leads actual construction spending by about nine to 12 months.
The ABI stood at 50.8 in the October reading. Before October, the index has been below 50.0 for two consecutive months.
Impact on steel demand
Higher construction activity leads to more demand for steel products. This is positive for steel companies as well as for Cliffs. Nucor (NUE) is the largest rebar supplier in North America. Commercial Metals Company (CMC) and Gerdau (GGB) are the other leading rebar suppliers.