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Here's What Could Drive Cliffs Natural Resources Stock in 2017

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Part 4
Here's What Could Drive Cliffs Natural Resources Stock in 2017 PART 4 OF 11

How Cliffs Could Benefit from Increasing Capacity Utilization

US steel production

In the previous part of this series, we looked at US steel imports in January 2017. In this part, we’ll look at weekly US steel production data released by the AISI (American Iron and Steel Institute).

How Cliffs Could Benefit from Increasing Capacity Utilization

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US (SPY) (SPX-INDEX) steel production is a very important volumes driver for Cliffs Natural Resources’ (CLF) US Iron Ore segment.

In January 2017, the United States produced ~6.9 million tons of steel. That was a rise of 6.5% YoY (year-over-year). According to data released by the AISI, for the week ended February 24, 2017, production was ~1.8 million tons, a rise of 0.20% from the week before. That production also marked a rise of 3.6% from the same week in 2016.

Capacity utilization picking up

It’s important for US steel investors to watch the capacity utilization ratio for the industry. Most of the industry has been operating below capacity utilization of 80.0% for the last few years. It’s much lower than the 90.0% that many market participants consider healthy. But recently, it has started to pick up as import penetration has started falling.

For the week ended February 25, 2017, utilization was 74.7%. The week before, it was 74.6%, and in the corresponding week in 2016, it was 73.1%. Capacity utilization year-to-date is also trending higher at 73.0% compared to 70.8% for 2016.

Support of steel production

Utilization is slowly inching upward. President Donald Trump’s infrastructure push could support steel production growth in the United States going forward. He has reaffirmed his view that pipeline makers should use domestic US steel.

Some analysts expect a steep rise in US steel demand under Trump’s presidency. Companies such as United States Steel (X), ArcelorMittal (MT), Nucor (NUE), and Steel Dynamics (STLD) could benefit from higher shipments going forward. In turn, that would benefit Cliffs Natural Resources.

Next, let’s see how the drivers for steel demand are shaping up in the US steel market.

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