Challenges for US Steel
The previous part of this article discussed how lower steel prices post a challenge for US Steel (X). In fact, lower steel prices in the United States are a challenge for all steel plays in the US. Along with lower steel prices, US Steel faces several other challenges in 2015.
Higher level of imports
Steel imports as a percentage of domestic consumption reached alarming highs in 2015. Analysts expect imports to be at elevated levels in 2015 as well. Global overcapacity in the steel industry has only increased in 2015. New steel production capacity is coming online in 2015, while analysts expect steel consumption to grow at a sluggish pace this year.
Stronger US dollar
The US dollar has strengthened against all major currencies. A stronger US dollar drives down the landing cost of imported steel products. This is a challenge for steel producers like ArcelorMittal (MT), AK Steel (AKS), and Nucor (NUE). Nucor currently forms 2.52% of the Materials Select Sector SPDR ETF (XLB).
Lower crude prices
Crude oil prices have fallen sharply in the last couple of months. This has led to a decline in US rig count also, as the above chart shows. Energy producers like ConocoPhillips (COP) have reduced their capital expenditure targets for 2015, which will most likely have a negative impact on steel demand. US Steel is the largest supplier of steel products to energy companies. The company has already idled several of its plants that produce tubular products.
However, lower crude prices can also have a positive impact on the steel industry. We’ll discuss this in our next part.