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CLF: How US Steel Production Could Shape Up

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US steel production

US steel production (SPY)(SPX) is the major revenue driver for US steelmakers (X). This data point is released every month by the World Steel Association (or WSA). According to the WSA, the United States produced 7.0 million tons of crude steel in October 2017, which implies growth of an impressive 12% year-over-year (or YoY) and 4.9% month-over-month. According to the American Iron and Steel Institute (or AISI), steel production in the Great Lakes region rose to 631,000 for the week ended December 2.  Year-to-date production is 83.3 million tons, representing growth of 4.3% compared to the same period last year.

Capacity utilization

US steelmakers have been operating at a capacity utilization of 74.5% year-to-date, which is higher than the 70.8% steelmakers achieved during the same period last year. For the week ended December 2, capacity utilization was 73.8%, which was higher than the 67.3% utilization level achieved in the same week a year ago. While utilization has been inching higher in 2017, it’s still lower than the 90.0% market participants consider healthy.

CLF’s production guidance cut

While US steel production has risen YoY in 2017, higher imports have acted against many domestic steelmakers’ interests and consequently Cleveland-Cliffs (CLF), which supplies raw material to these companies. CLF downgraded its sales and production guidance for the United States from 19.0 million tons to 18.5 million tons for 2017. The downgrade mainly related to reduced pellets nominations from a major customer of Cleveland-Cliffs. Nucor (NUE) and AK Steel (AKS) had noted higher US steel imports in their respective 3Q17 earnings releases.

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