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Are Tariffs Achieving the Commerce Department’s Objective?

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US Commerce Department

The Section 232 tariffs recommended by the Commerce Department intend to safeguard US national security. The Commerce Department is also aiming to improve the domestic steel industry’s capacity utilization rate. While releasing its Section 232 recommendations, it noted, “The quotas or tariffs imposed should be sufficient, even after any exceptions (if granted), to enable US steel producers to operate at an 80 percent or better average capacity utilization rate based on available capacity in 2017.”

Without getting into the debate of whether steel imports are a threat to US national security, let’s take a look at the recent trend in US steel production and capacity utilization rates.

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Capacity utilization rate

According to the AISI (American Iron and Steel Institute), the US steel industry’s capacity utilization rate was 77.4% for the week ending March 24. The ratio has averaged 75.3% so far in 2018. US steel production, which had been stagnant earlier in the year, has also picked up the pace. In the week ending March 24, US steel production rose 5.1% year-over-year.

We could see US steel production gain traction in the coming weeks if there’s import substitution. Companies like Nucor (NUE) have some latent capacity to offer in spot markets. U.S. Steel Corporation (X) has announced the restart of its Granite City plant, which should boost its shipments profile. AK Steel (AKS) still has a plant idle. If we see an increase in US steel production, it should also benefit Cleveland-Cliffs (CLF), which supplies iron ore to US steel mills including ArcelorMittal (MT).

In the next part of this series, we’ll look at the recent trend in global steel production.

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