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Steel Companies Expect Strong Demand in 2018

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Steel demand

In the US steel sector, the demand for steel drives US steelmakers’ (SLX) revenues. As a result, investors who are interested in Cleveland-Cliffs (CLF) track US steel demand. In this part of our series, we’ll see how investors can track the demand for US steel by monitoring demand indicators. The construction and automotive sectors are the two largest steel end consumers.

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Demand indicators

After increasing 3.6% YoY (year-over-year) in March, housing starts fell 3.7% to 1.30 million units in April. The data were worse than expected. Economists polled by Reuters were expecting the starts to come in at 1.31 million units.

Building permits fell 1.8% to 1.35 million units in April. The data were in line with the market expectations.

Import tariffs and demand

The higher cost of lumber is also having a negative impact on builders. President Trump imposed anti-subsidy duties on Canadian softwood lumber imports in April last year. In addition to these duties, the latest import duties on steel and aluminum products could also increase the cost of production for the construction market, which would impact the demand.

Some analysts expect US steel demand to soften. The Section 232 tariffs have led to higher steel prices in the United States. Critics of the Section 232 tariffs expect higher imports in the downstream steel-consuming industry due to imposing the tariffs.

Companies’ take on steel demand

However, softening demand isn’t expected to dent US steelmakers and Cleveland-Cliffs’ earnings too much. In fact, Cleveland-Cliffs pointed out in its first-quarter earnings that the steel demand remained healthy during the first quarter in the automotive, construction, machinery and equipment, and energy sectors. Lourenco Goncalves, the company’s president and CEO, also mentioned during the call that the steel mill business is expected to remain strong this year and support prices “no matter what happens with Section 232.” Nucor (NUE) and Steel Dynamics (STLD) have pointed to strong underlying steel demand in the United States (XME). U.S. Steel Corporation (X) expects its second-quarter steel shipments to be slightly lower compared to the first quarter due to an outage at its Great Lakes Works plant.

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