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US Steel Demand Outlook: Could Automotive Play Spoilsport?

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Oct. 11 2020, Updated 12:12 p.m. ET

US steel demand

As we noted previously in this series, the markets are concerned that US steel prices have peaked. Steel prices, like other commodities, eventually depend on supply-and-demand dynamics. In this article, we’ll look at the outlook for US steel demand.

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Construction sector

The construction, automotive, and energy industries are the leading steel consumers. Prevailing interest rates impact ongoing housing and automotive demand. August’s leading indicators showed continued growth in the construction sector.

The Architectural Billing Index came in at 54.2 in August, compared to 50.7 in July. This index has been above 50 for 11 consecutive months. An ABI above 50 signifies an increase in billing and bodes well for nonresidential construction spending.

With respect to the residential construction sector, US new home sales jumped in August. According to Reuters, “Sales of new U.S. single-family homes rebounded in August after two straight monthly declines, but the underlying trend still pointed to a weakening housing market against the backdrop of rising mortgage rates and higher home prices.”

Automotive sector

As for the automotive sector, US car sales peaked in 2016. Sales have been reasonably strong since then and were roughly flat on a yearly basis in the first nine months of the year. However, we saw a sharp decline in September’s auto sales.

ArcelorMittal (MT) is the leading steel supplier to the automotive sector, and AK Steel (AKS) ships more than two-thirds of its steel to automotive customers. Ford’s (F) US sales fell 11.2% year-over-year in September.

The energy sector’s steel demand outlook also looks strong, led by higher energy prices. U.S. Steel Corporation’s (X) Tubular segment supplies the energy industry. The demand outlook looks decent, and US steel demand could rise in the near term.

Higher US steel demand also benefits Cleveland-Cliffs (CLF), which supplies iron ore to US steel companies. We’ll discuss this topic in the next article.

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