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The US Steel Production Outlook and Import Tariffs

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US steel production

US steel production is the key variable that drives revenues for US steelmakers (SLX). US steelmakers such as AK Steel (AKS) and ArcelorMittal (MT) are Cleveland-Cliffs’s (CLF) customers. Cliffs investors track this data to get a sense of the direction overall volumes are taking.

According to the World Steel Association (or WSA) data, US steel production increased 0.4% year-over-year (or YoY) in February 2018, compared to a fall of 2.2% YoY in January.

According to AISI (American Iron and Steel Institute) data, US steel production rose 5.1% year-over-year (or YoY) to 1.8 million tons. Year-to-date (or YTD), the production has been up 0.8% to 20.8 million tons.

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Capacity utilization

One of the main aims of curbing imports is to improve the capacity utilization of the US steel industry. The Commerce Department, in its recommendations to the Trump administration, mentioned that tariffs should allow US steel producers to operate at 80% average capacity utilization or better. According to the latest AISI data, the US steel industry’s capacity utilization rate was 75.3% YTD as of March 24, which is higher than the rate of 74.6% recorded in the same period last year.

US production outlook is strong

While US steel production grew YoY in 2017, the increase in imports negatively impacted US steelmakers as well as Cliffs. In 2018, however, the imposition of import tariffs should lead to still higher production in the United States. U.S. Steel (X) and AK Steel (AKS) might look at restarting some of their idled plants. Cliffs also expects strong customer pellet nominations. It has guided for US production of 20.0 million long tons of iron ore pellets for 2018—higher than the 18.7 million long tons achieved in 2017.

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