Europe’s steel demand
Previously, we saw how steel production has come down in Europe (VGK). ArcelorMittal (MT) gets almost half of its revenue from Europe. US Steel (X) also has operations in Europe. These companies have been negatively affected by the slowdown in Europe. US Steel currently forms 3.2% of the SPDR S&P Metals and Mining ETF (XME). Allegheny Technologies (ATI) and Timken Steel (TMST) form 3.9% and 3.4%, respectively, of XME.
In this part, we will analyze Europe’s anticipated steel demand. We will first analyze the housing permits in the EU. The index tracks the number of permits that have been issued for new construction, additions to existing structures, or major renovations. It can give investors an idea of the housing and construction industry in the EU. An increase in the housing permits index means a potential increase in construction activity, which would also indicate an increase in the demand for steel products.
The above chart shows the trends in the EU housing permit index, which has been in an uptrend for three consecutive months. However, when compared to last year, housing permits have declined. In October 2014, housing permits came down by 2.7% on a year-over-year (or YoY) basis.
The real estate sector is the biggest consumer of steel products in the EU. A sustained recovery in the housing market should boost the European steel industry. However, the EU housing industry has been giving mixed signals. Investors should watch this index in the coming few months to fully understand the trend.
There are several other indicators in the European economy that investors should track. In the next article, we will discuss these indicators in detail.