Cliffs and US steel imports
Cliffs Natural Resources’ (CLF) USIO (US Iron Ore) segment mainly sells iron ore to integrated steel companies in the United States and Canada.
Higher US steel imports, in turn, negatively impact these companies’ orderbooks and pricing. For this reason, it’s important for Cliffs’ investors to keep track of steel import penetration in the US market.
Cliffs’ CEO, Lourenco Goncalves, mentioned during the Goldman Sachs (GS) conference on November 16, 2016, that the percentage of domestic steel on the market was close to 70%. The goal, he said, was the 80% range.
Imports rose in November
According to preliminary data released by the U.S. Census Bureau, the United States imported 2.5 million metric tons of steel products in November 2016. This amount represented a YoY (year-over-year) rise of 14.3%. Imports also rose compared to a month earlier. Notably, November 2016 was the first month since March 2015 in which steel imports rose on a YoY basis.
Since May 2015, US steel imports have fallen by an average of 18% YoY each month. Falling steel imports provided much-needed pricing power to US steelmakers such as U.S. Steel (X), AK Steel (AKS), and Nucor (NUE).
Impact of trade cases
Because US companies have filed several trade cases against unfairly traded steel in the United States, the duties on importing steel have risen significantly. This rise has minimized the incentive for US steel buyers to import steel products.
The rise in November 2016 imports shouldn’t be a big concern for investors. It happened mainly due to higher imports of semifinished steel products.
Going forward, steel imports into the United States are expected to be restricted due to President-elect Donald Trump’s protectionist policies.
In the next article, we’ll take a look at the recent trend in US steel (SLX) production.