Cliffs and the US steel industry
Cliffs Natural Resources (CLF) is the largest supplier of iron ore pellets to US steelmakers. The US steel production trends can help you decipher the health of Cliffs and other integrated iron ore producers in the United States, such as AK Steel (AKS), ArcelorMittal (MT), and US Steel (X).
Declining steel production
The above chart shows the trend in US steel production, with data released on a weekly basis by the American Iron and Steel Institute. For the half-year ending in June, US steel production has declined 6.5%, compared with the same period last year. The US steel industry’s capacity utilization ratio also declined to 72.4%, from 77.3% in the same period last year.
Steel imports from other countries, including China, present the major reason for lower production and capacity utilization. Ongoing cheaper imports led some integrated steelmakers to close some of their iron ore mines. Steel Dynamics (STLD) has idled its Minnesota iron-making operations for at least 24 months. Previously, AK Steel (AKS) wrote off its investment in the Magnetation joint venture. We’ll talk more about this and its impact on Cliffs later in the series. AK Steel forms 3.2% of the SPDR S&P Metals and Mining ETF (XME).
However, recently we’ve seen import pressures subsiding due to trade cases and anti-dumping litigation. This could offer an upside to the steelmakers and, ultimately, Cliffs.
In the next part of this series, we’ll see how steel prices in the US are progressing. This could have a significant bearing on Cliffs Natural Resources’ fortunes.