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How Could Automotive Industry Steel Demand Shape Up in 2018?

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Automotive industry steel demand

In the previous part of this series, we looked at some of the leading indicators of the construction sector. The automotive industry is the second-largest end steel consumer after the construction sector. ArcelorMittal (MT) is the leading steel supplier to the automotive industry. AK Steel (AKS) is another leading steel supplier to the US automotive industry, and most of the company’s steel shipments are to the automotive industry. The auto steel space has seen increased competition with companies like Nucor (NUE) striving to get a bigger pie in the lucrative market (X).

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Car sales

Last month, US auto sales totaled 1.4 million vehicle units, according to data compiled by Autodata. That number was 1.3% higher than sales of 1.38 million vehicle units in November 2016 and higher than 1.35 million vehicle units in October 2017. While most analysts were projecting soft auto sales this year, car sales are down only slightly as compared to 2016.

2018 drivers

While small car sales have been on a falling trend this year, they have been offset by rising sales of utility vehicles (or UVs). However, 2018 could be different for UV sales. After raising rates thrice this year, the US Federal Reserve looks on track to raise rates further in 2018. Furthermore, energy prices have firmed over the last couple of months. If vehicle financing costs rise further next year and we see further strengthening of energy prices, some of the car buyers might want to rethink their plans to buy larger vehicles.

Having said that, a growing economy and higher consumer confidence could support US automotive industry next year. As things stand today, US automotive industry’s 2018 outlook looks fairly bullish. Higher car sales boost demand for metals including steel (SPY)(SPX).

In the next part of this series, we’ll see how US steel production looks as 2017 wraps up.

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