Could US Steel Demand Indicators Mean an Upside for CLF in 2018?



Steel demand

In the US steel sector, demand for steel drives the revenues for US steelmakers (SLX). As a result, investors interested in Cleveland-Cliffs (CLF) should track US steel demand. In this part of our series, we’ll see how investors can track the demand for US steel (SPY)(SPX) by monitoring the demand indicators.

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Residential indicators

While analyzing steel demand in the US, it is vital to track the construction sector, as it accounts for ~40.0% of US steel demand.

In November 2017, US housing starts totaled 1,297,000 units, rising 3.3% year-over-year (or YoY) for a fresh one-year high. This was also higher than the economists’ expectations of 1,250,000. This rise was unexpected, driven by the construction of single-family housing units surging to a ten-year high.

The building permits dropped by 1.4% to 1,298,000 units in November. This decline was due to the decrease in permits for the construction of multifamily homes.

Non-residential indicators

The Architectural Billing Index (or ABI), which is a leading indicator of non-residential construction, increased significantly from 51.4 in October to 55.0 in November 2017.  This is the strongest reading for 2017 and reflects an increase in design services. So, the leading indicators of both residential and non-residential construction signal strong demand as 2018 begins.

Steel companies such as Nucor (NUE) and Steel Dynamics (STLD) noted in their 3Q17 earnings that the demand from the construction sector is generally stable or improving. AK Steel (AKS), on the other hand, was slightly more cautious. AKS noted that its core automotive market had softened a bit from the record levels of 2016. U.S. Steel (X) expects a 4.0% increase YoY in major appliance shipments in 2017.


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