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What These Indicators Say about Cliffs Natural Resources' Future

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Part 3
What These Indicators Say about Cliffs Natural Resources' Future PART 3 OF 10

The Outlook for US Steel Production and Cliffs’ US Volumes

US steel production

In the previous part of this series, we looked at US steel imports in March 2017. In this article, we’ll look at US steel production data.

Since Cliffs Natural Resources’ (CLF) USIO (US Iron Ore) segment supplies raw material to US steelmakers, steel production in the United States (SPY) (SPX) is an important driver of its performance.

The Outlook for US Steel Production and Cliffs&#8217; US Volumes

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According to the World Steel Association, the United States produced 7 million tons of crude steel in March 2017, a rise of 3.4% compared to March 2016.

US steel production in February was ~6.4 million metric tons, a fall of 1% year-over-year (or YoY). In January and February, US steel production totaled ~13.3 million tons, a rise of 3.5% YoY.

According to data released by the AISI (American Iron and Steel Institute), steel production increased for the third consecutive week in the week ended April 25, 2017. Year-to-date (or YTD), production rose 3.5% to 29.5 million tons.

Capacity utilization inching higher

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

In the week ended April 25, 2017, utilization was 75.1%. That’s 2% higher than utilization a week ago, and in the corresponding week in 2016, it was 72.6%. YTD capacity utilization is trending at 74.3%, higher than 71.6% in the comparable period of 2016.

Higher steel production?

Going forward, there’s huge potential for improvement in capacity utilization. Most industry participants, including AK Steel (AKS), believe that the market share of imports is very high compared to historical standards. President Donald Trump’s infrastructure push as well as the current steel probe could support steel production growth in the United States.

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

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

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