Energy sector’s steel demand
Previously, we saw how the construction and automobile industries’ steel demand could be strong in 2015. However, the energy sector’s steel demand could be subdued in 2015. U.S. Steel Corp. (X) is the largest supplier to energy companies in North America. Recently, Nucor (NUE) acquired a steel plant from ArcelorMittal (MT). Nucor acquired the steel plant to serve energy companies’ growing demand.
Why the energy sector is important
Energy companies’ steel demand has been growing at a fast pace. Globally, higher crude oil prices drove a lot of energy companies to invest in shale formations. However, lower crude oil prices dampened the mood among energy exploration companies.
The rig count indicates the oil and gas exploration industry’s health. It tells you how many rigs are currently active for drilling. Rig counts fell sharply towards the end of 2014. This can be seen in the above chart.
Recently, ConocoPhillips (COP) announced that it will reduce its 2015 capex by 20%. Other exploration companies are also expected to follow ConocoPhillips. Please be aware that ConocoPhillips is the third largest integrated energy company in the US. The SPDR Oil & Gas Explorations & Production ETF (XOP) seeks to invest in energy companies.
Crude oil is below $50?
Analysts believe that if crude oil prices are below $50 for considerable period, it could be catastrophic for shale plays. A lot of crude oil production in the US could become unprofitable at that level. In 2015, steel plays are starting at lower steel demand than energy companies.
Lower crude oil prices pushed the steel prices lower towards the end of 2014. This is another challenge that the steel industry faces as it enters into 2015.
In the next part of this series, we’ll discuss the outlook for steel prices in 2015.