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Cliffs Natural Resources: Upside with Steel, Iron Ore Indicators?

PART:
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Part 3
Cliffs Natural Resources: Upside with Steel, Iron Ore Indicators? PART 3 OF 7

What Could US Steel Demand Drivers Be in 2017?

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 the data.

The construction sector is the leading steel consumer in the United States (SPY). It accounts for ~40.0% of total steel demand, including residential and non-residential construction.

What Could US Steel Demand Drivers Be in 2017?

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Demand indicators

Building permits and housing starts act as leading indicators of residential construction activity. The data for housing starts came in better than expected. Starts rose 11.3% to ~1.2 million units in December 2016.

The ABI (Architectural Billing Index) is a leading indicator of non-residential construction spending and is based on a survey of architects. An index value above 50 indicates a rise in billing. Higher architectural billing generally translates into increased future construction spending. The ABI leads actual construction spending by about nine to 12 months.

The ABI stood at 55.9 in December 2016 compared to 50.6 in November 2016. Before October 2016, the index had been below 50.0 for two consecutive months. The change reflects higher non-residential construction activity.

Impact on steel demand

President Donald Trump said he intends to spend more than $500.0 billion on infrastructure. So during his presidency, we could see higher allocations to infrastructure spending. We also saw Trump reaffirming his view on using US manufactured steel products for pipelines.

Higher construction activity leads to more demand for steel products, which is positive for steel companies as well as for Cliffs Natural Resources. Nucor (NUE) is the largest rebar supplier in North America. Commercial Metals (CMC) and Gerdau (GGB) are the other leading rebar suppliers.

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