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US Steel Demand: 2018 Could Be a Strong Year

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Dec. 4 2020, Updated 10:52 a.m. ET

US steel demand outlook

Steel prices, like other commodities, are impacted by underlying demand-supply dynamics. The construction, automotive, and energy sectors are among the key steel end consumers. In this part, we’ll see how the demand from these sectors could play out in 2018.

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Construction sector

Looking at the residential construction sector, US housing starts rose 3.3% to a SAAR (seasonally adjusted annual rate) of 1.297 million units in November. The Architectural Billing Index, which acts as a leading indicator of the non-residential construction sector, also rose to 55 in November. We should remember that a value above 50 indicates an increase in billing. Higher architectural billing usually translates into increased future construction spending. Leading indicators point to strong steel demand from the construction sector this year.

If the Trump administration moves forward on the proposed infrastructure investments, it could boost US steel demand. Nucor (NUE) is the leading rebar supplier in the US (SPY) (SPX). Rebar is used in the non-residential construction sector.

Automotive sector

Looking at the automotive sector, while higher gasoline prices and rising interest rates could act as dampeners, a growing economy and higher consumer confidence could support the US automotive industry in 2018. As things stand today, the US automotive industry’s 2018 outlook looks fairly bullish. Higher car sales boost the demand for metals including steel. AK Steel (AKS) gets most of its revenues from automotive customers. ArcelorMittal (MT) is the leading steel supplier to the automotive industry.

The energy industry’s steel demand should also continue its uptrend in 2018. Energy prices have firmed up and incentivized new exploration activity. U.S. Steel Corporation’s (X) Tubular segment contributes to the energy sector.

While the outlook for US steel demand looks bullish, there are some concerns about Chinese steel demand. We’ll discuss the concerns in the next part.

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