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Steel Demand: Automobile and Energy Trend in Opposite Directions

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Steel demand

The automobile and energy sectors are among the major steel consumers. However, steel demand from these two sectors has been trending in opposite directions for the last few quarters. Let’s see this in perspective.

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Strong automobile demand

Vehicle sales in the United States have been strong so far in 2015. According to WardsAuto, US auto sales reached a seasonally adjusted annual rate (or SAAR) of 18.1 million units in October. Ford (F) and General Motors (GM) are posting record earnings on the back of strong North American automobile sales.

Among the major steel companies, only AK Steel (AKS) reported higher 3Q15 steel shipments compared to the previous quarter. The company ships almost half of its steel to automotive customers. Other steel companies, including U.S. Steel (X), Nucor (NUE), and Steel Dynamics (STLD), reported fewer steel shipments in 3Q15 compared to 2Q15. AK Steel attributed higher steel shipments to the strong automotive demand.

Energy continues to be weak

The US (SPY) rig count has continued its downslide, as you can see in the above graph. As of November 20, 2015, there were 757 active rigs, according to data compiled by Baker Hughes. The active rig count has fallen by ~100 since the middle of September. U.S. Steel Corporation (X), and Tenaris SA (TS), which are major steel suppliers to the energy sector, have been negatively impacted by the slowdown in steel demand from the energy sector.

Energy companies could further tighten their 2016 capital expenditure budgets as the lower-for-longer view on oil prices gains strength. This would negatively impact X and TS next year as well.

Read Key Highlights from Steel Companies’ 3Q15 Earnings to learn more about how steel companies fared in the quarter.

In the next part, we’ll look at how service center buying activity is shaping up.

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