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US Steel Consumption Is Expected to Drop This Year

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Apr. 22 2015, Updated 2:37 p.m. ET

US steel consumption

In its short range outlook report, released on April 20, the WSA (World Steel Association) expects US steel consumption to drop 0.4% this year on a YoY (year-over-year) basis. Last year, US steel consumption increased by an impressive 11.7%. The outlook for the US steel industry got worse in the last few months. Companies, like AK Steel (AKS), get a major part of their revenue from the US markets.

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Production down

Until last year, US steel companies faced a challenge in cheap imports from countries like China and Korea. Apparently, Korea (EWY) emerged as the biggest steel exporter to the US. The threat from steel imports persists this year as well. However, now steel companies are faced with a demand slowdown as well. US Steel production dropped substantially this year. This can be seen in the above chart.

Energy sector

Steel Dynamics (STLD) reported its 1Q15 financial results on April 20. It reported a sequential drop in steel shipments. The slowdown in US steel consumption is largely led by the energy sector. The energy sector accounts for 10% of steel consumption. It saw its fortunes turn upside down as crude oil prices plummeted to multiyear lows.

The oil rig count is down by more than half since October 2014. Steel demand from energy companies has been subdued this year. Almost 10% of Nucor’s (NUE) shipments are to the energy sector. Tenaris (TS) is another major supplier to energy companies. These companies have been hit negatively by the steep fall in crude oil prices.

The US housing sector also showed signs of weakness over the last couple of months. We’ll discuss this in more detail in the next part of this series.

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