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Indicators Point to Strengthening US Steel Demand

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Jul. 8 2015, Published 1:38 p.m. ET

US steel demand

Steel demand is dependent on the fortunes of its end users, and the construction sector is the biggest steel consumer in the United States. In this part of the series, we’ll explore some positive developments in the US housing industry. Residential construction spending accounts for over one-third of total construction spending.

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Housing indicators move closer to pre-crisis levels

The housing sector was among the worst affected during the financial crisis of 2008. However, this sector has shown resilience over the last couple of years. Recently, there has been some very encouraging data flowing from the housing industry.

In May, building permits increased by an impressive 25.4% on a year-over-year basis, shown in the above chart. As compared with April, building permits increased 11.8% to reach a seasonally adjusted rate of 1.28 million, which is the highest level in the last eight years.

Higher building permits bode well for steel demand

To construct any building, permits must be obtained from government agencies. Building permits act as a leading indicator of future activity in residential real estate. Higher permit applications and issuances mean that more buildings are expected to be built in the future.

Higher construction activity would be positive for steelmakers like Nucor (NUE), Ternium (TX), and Commercial Metals Company (CMC). Nucor currently forms 2.6% of the Materials Select Sector SPDR ETF (XLB) and 4.1% of the SPDR S&P Metals and Mining ETF (XME).

Meanwhile, it’s not only the building permits that have surged past pre-crisis levels. There are several other housing indicators that have recently achieved this feat. We’ll explore these in the next part of this series.

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