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US Steel Production Disappoints and Declines 7.2%

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Dec. 4 2020, Updated 10:53 a.m. ET

US steel production

Previously in this series, we discussed that steel demand looks strong, particularly from the construction and automobile sectors. The energy sector has been a notable exception. Now, the rig count has dropped to the lowest level since 2003. In this part of the series, we’ll analyze how steel production is shaping up in the US.

The AISI (American Iron and Steel Institute) releases the weekly steel production figures. Steel production in the US has declined 7.2% YoY (year-over-year) in the first five months of this year.

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Capacity utilization ratio

The AISI also releases the capacity utilization rate in the steel industry. The capacity utilization ratio represents the actual production as a percentage of total installed production capacity. It’s a key metric for investors in the metals and mining industry (XME).

In the US steel industry, the capacity utilization stood at 72.3% in the week ending May 30. In contrast, the steel industry operated at a utilization rate of 77% in the same period last year. This can be seen in the previous chart.

Negative for steel industry

Steel companies like U.S. Steel (X) and AK Steel (AKS) have a high fixed cost structure. They’re severely impacted when the capacity utilization rates decline. Both of these companies posted a loss in the first quarter. Nucor (NUE) and Steel Dynamics (STLD) use EAF (electric arc furnaces) to produce steel. They managed to remain profitable in the first quarter.

US steel production has been hit hard by the slowdown in the energy sector. The higher levels of steel imports also aren’t helping the steel industry’s cause. In the next part of the series, we’ll analyze the latest trend in US steel imports.

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