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What These Indicators Say about Cliffs Natural Resources' Future

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Part 4
What These Indicators Say about Cliffs Natural Resources' Future PART 4 OF 10

These US Steel Demand Drivers Have Shaped Up US Volumes for CLF

US steel demand

US steel demand is the major driver of steel companies’ (SLX) volumes and prices. Since these companies are Cliffs Natural Resources’ (CLF) main customers, it’s important to track steel demand data.

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

These US Steel Demand Drivers Have Shaped Up US Volumes for CLF

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Demand indicators

Building permits and housing starts act as leading indicators of residential construction activity. The data for building permits came in slightly better than expected. Permits rose 3.6% in March to an annualized 1.26 million units, compared to the consensus expectation of 1.25 million.

On the other hand, housing starts fell more than expected in March. They fell 6.8% to an annualized 1.21 million units. Economists had been expecting a fall of just 3%.

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

The ABI, which shifted into positive territory in February 2017 with a reading of 50.7. showed a steep rise to 54.3 in March. The data for March indicated a rise in design services.

How’s steel demand shaping up?

The data mostly point to the fact that steel demand in the United States is firming up. This trend could see a major boost if President Donald Trump is able to follow through with his infrastructure investment spending plans.

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

Next, we’ll look at the trend in US steel prices, which could impact realized prices for Cliffs’ customers.

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