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How US Steel Production Can Support Cleveland-Cliffs’ Volumes in 2018

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US steel production

US steel production (SLX) is the major revenue driver for US steelmakers (X). US steelmakers such as AK Steel (AKS) are Cleveland-Cliffs’ (CLF) customers. So it’s important for investors to track this data point.

According to the World Steel Association (or WSA), 6.7 million tons of crude steel were produced in the US in November 2017 compared to 7.0 million tons in October 2017. The production in November also implies a year-over-year (or YoY) gain of 8.5%.

According to the data released by American Iron and Steel Institute (or AISI), steel production in the Great Lakes region rose to 639,000 for the week ended December 23, 2017. Year-to-date production is close to 88.5 million tons, which represents growth of 4.4% YoY.

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Capacity utilization

The capacity utilization for US steelmakers has increased in 2017 compared to 2016. While domestic still mills were running at a capacity utilization of 74.4% year-to-date, the utilization was just 70.5% in the same period a year ago.

Although this 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 are acting against many domestic steelmakers’ interests, including Cleveland-Cliffs’ (CLF) interests. CLF supplies raw material to these companies.

The company downgraded its sales and production guidance for the US division 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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