Steel supply and demand
Steel companies have been quite volatile in June. Apart from China’s growth worries, concerns about Brexit, or the United Kingdom leaving the European Union, have added to market volatility. However, along with these issues affecting market sentiment, it’s important for investors to keep track of the steel industry’s underlying fundamentals. Just like the prices of other commodities, steel prices depend on supply and demand dynamics.
The graph above shows the recent movement in HRC (hot rolled coil) prices. Spot steel prices in the United States seem to be stabilizing now after the steep rally between March and May. Higher spot steel prices have helped steelmakers like U.S. Steel Corporation (X) and AK Steel Holding Corporation (AKS) move to higher price levels.
One of the factors helping US steel pricing has been the steep fall in imports. Furthermore, US steelmakers have kept supply tight, which has increased the lead times for some steel products.
Steel is a global commodity. Thus, steel companies in the United States are affected by developments in the global steel industry. China, India, Japan, and Europe are among the world’s major steel consumers. Although the US steel industry is currently somewhat immune from global developments due to the impact of trade cases, over the medium- to long-term, global developments will likely impact US steelmakers. Notably, more steel production in China has led to a glut of steel in international markets.
In this series, we’ll look at steel production data for May. We’ll also look at US steel supply and demand indicators. These will help you understand the health of the steel industry. Let’s begin by looking at global steel production data.
If you want to avoid the hassles of picking individual stocks, you can consider the SPDR S&P Metals and Mining ETF (XME). Currently, XME has invested more than half of its holdings in US-based steel companies. Together, Nucor (NUE) and Steel Dynamics (STLD) form ~8.8% of XME’s portfolio.
In the next part of this series, we’ll discuss steel production data for May.