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How US Steel Demand Drivers Look for the Rest of 2017

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US steel demand

The US steel demand is the major driver behind steel companies’ (SLX) volumes and prices. Since these companies are Cliffs Natural Resources’ (CLF) main customers, it’s important to track the data.

The construction sector is the leading steel consumer in the United States (DIA) (DOW). It accounts for ~40.0% of total steel demand, including residential and non-residential construction.

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Demand indicators

Building permits and housing starts act as leading indicators of residential construction activity. The data for building permits came in worse than expected. Permits fell 6.2% in February 2017 to an annual rate of 1.21 million. The consensus expectations were for 1.26 million. Housing starts, on the other hand, rose 3% to an annual 1.29 million from February compared to a fall of 2.6% in January 2017. This rise was supported by warm weather, which pushed the construction of single-family houses to a nine-and-a-half-year high.

The ABI (Architectural Billings Index) is a leading indicator of non-residential construction spending. It’s based on a survey of architects. An index value above 50 indicates a rise in billing. Higher architectural billing generally translates to increased future construction spending. The ABI leads actual construction spending by about nine to 12 months.

The ABI shifted into positive terrain in February with a reading of 50.7. January’s reading was 49.5 in comparison. The data for February indicates a slight increase in design services.

How’s steel demand shaping?

The data mostly points to the fact that steel demand in the United States is firming. This trend could get a major boost if Donald Trump is able to follow through with his infrastructure investment spending plans.

Higher construction activity leads to more demand for steel products, which is positive for steel companies as well as Cliffs Natural Resources. Nucor (NUE) is the largest rebar supplier in North America. Commercial Metals (CMC) and Gerdau (GGV) are the other leading rebar suppliers.

Next, we’ll look at the trend in US steel prices, which could impact realized prices for Cliffs’ customers.

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