According to AISI (American Iron and Steel Institute) data, US steel production rose 9.8% YoY in the week ending September 8. On a year-to-date basis, US steel production has risen 4.1% compared to the same period in 2017.
With the Section 232 tariffs, the Commerce Department intends to improve US steel production and capacity utilization rates. In 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.” Last week, the US steel industry’s capacity utilization rate rose above 80% for the first time since 2014.
Section 232 tariffs
As the Section 232 tariffs have lifted US steel prices and curbed imports, we’ve seen import substitution with domestic production. U.S. Steel (X) has restarted its Granite City facility, which was idled in 2015 after US steel prices plunged. However, AK Steel (AKS) still has its Ashland Works plant idled.
Other US steel producers also reported healthy capacity utilization rates in the second quarter. Steel Dynamics reported a capacity utilization rate of 99% in Q2 2018, while Nucor’s (NUE) operating rate rose to 95% in the quarter. Both of these companies are investing to expand their production capacity. Rising US steel production (IVV) is also positive for Cleveland-Cliffs (CLF), which supplies iron ore to companies including ArcelorMittal.
Meanwhile, while the Commerce Department has achieved its goal of raising the US steel industry’s capacity utilization rate, investors don’t seem too impressed with the US steel industry’s outlook, which we’ll discuss in the next article.