US steel production
US steel production is the key factor that drives US steelmakers’ (SLX)(XME) revenues. Investors track production data to get a sense of the direction of overall volumes. AK Steel (AKS) and ArcelorMittal (MT) are among Cleveland-Cliffs’ (CLF) key customers.
We discussed the impact of Section 232 tariffs on the US (DIA)(VTI) steel imports in the previous part of this series. One of the main objectives of these tariffs was to increase the capacity utilization of US steel production.
According to data from the World Steel Association, the United States produced 7.5 million tons of steel in August, a 5.1% rise YoY (year-over-year). AISI (American Iron and Steel Institute) data noted that until the week that ended on September 15, US steel production was up 4.3% YoY.
The recent trend in the utilization data shows that the US Department of Commerce’s objective to improve the domestic steel industry’s capacity utilization has been achieving its goal. According to AISI data, the year-to-date capacity utilization of US steel mills increased to 77.4% compared to 74.4% in the same period last year.
For the week ended September 8, this utilization hit 80.2%, which is an important milestone. With import substitutions due to import duties, capacity utilization seems to be increasing in the United States, which is positive for US steel stocks.
US production outlook is strong
The fourth quarter is usually a weaker period for US steel shipments. The production of these companies is expected to be strong.
Cleveland-Cliffs also expects strong customer pellet sales. In the company’s second-quarter results, it increased its US sales volume guidance from 20.5 million long tons to 21.0 million long tons due to stronger-than-expected demand. This new guidance implies year-over-year volume growth of 12.5%.