In this series, we’ve seen how strong steel demand in the US was a key driver for steel plays in 2014. Steel companies’ share prices delivered solid returns from May to October 2014. However, two factors spoiled steel plays’ party. The factors were:
- Global slowdown
- Steel imports
The steel industry was having a decent run in 2014—until the global meltdown started in October. There were concerns about growth in China and Europe. The concerns impacted the global steel industry. Steel plays’ share prices fell sharply in October. You can learn more by reading Must-read: Global factors drag US steel plays.
In the US, steel imports are basically a function of a slowdown in other countries—like China. Steel imports are probably the US steel industry’s biggest risk. During the third quarter earnings conference call, Steel Dynamics (STLD) highlighted that steel imports were the biggest risk for its business. ArcelorMittal (MT), AK Steel (AKS), and U.S. Steel Corp. (X) shared the same view.
The above chart shows the trend in steel imports in the US—for the current year. Steel imports increased every month on a year-over-year, or YoY, basis. Until October 2014, steel imports were up ~35% on a YoY basis. You can read more about steel imports’ dynamics in our series An Investor’s Guide To US Steel Imports.
As a percentage of steel consumption, steel imports rose to alarmingly high levels later in the second half of 2014. This was negative for US steel companies. The performance of the SPDR S&P Metals and Mining ETF (XME) was also negatively impacted by steel imports.
Steel companies were already reeling from a historically high level of steel imports. They faced a “crude shock” towards the end of 2014. In the next part of this series, we’ll discuss the “crude shock.”