US Steel Imports Remain High: Could Steel Companies Suffer?
Cleveland-Cliffs and US steel imports
Most of Cleveland-Cliffs’s (CLF) revenue is tied to its US (SPY) (SPX) iron ore segment. The segment supplies iron ore pellets to domestic steelmakers, which is their main raw material. It is therefore important for investors to keep an eye on the progression of imported steel into the market. End consumers using imported steel in place of domestically produced steel impacts demand, and ultimately, price. Steelmakers AK Steel (AKS) and ArcelorMittal (MT) are two of Cleveland-Cliffs’s major clients.
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Imports rose in August
US steel imports rose YoY (year-over-year) in August for a tenth month. According to preliminary data released by the AISI (American Iron and Steel Institute), the United States imported ~3.3 million tons of steel in August 2017. While this is an increase YoY, it is a drop of 4.8% month-over-month. For the first eight months of the year, imports were 20.7% higher than in same period of the year prior. Imported steel has a market share of 28% YTD, significantly above the 20% most market participants consider normal.
Steel companies’ lower-than-expected guidance
Higher-than-expected steel imports have also affected domestic steelmakers’ future guidance. Nucor (NUE) and Steel Dynamics (STLD) recently released their 3Q17 earnings, which were lower than expected. They cited higher imports as one of the reasons for margin compression.
In August, steel executives wrote a letter to Trump, stating the need for urgent action. A favorable and speedy decision on the Section 232 probe could go a long way in pushing US steel stocks higher.