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Why the US Steel Industry’s Demand-Supply Equation Looks Hazy

Mohit Oberoi, CFA - Author

Nov. 29 2018, Published 3:25 p.m. ET

Demand-supply equation

US steel stocks U.S. Steel Corporation (X), AK Steel (AKS), and Steel Dynamics (STLD) fell to their 52-week lows on November 27. Cleveland-Cliffs (CLF) was an exception and closed with a gain on the day, as it announced a share buyback.

Other steel companies Nucor (NUE) and U.S. Steel also have share buyback programs in place.

However, steel stocks bounced back the next day amid a rally in the broader markets. While several factors affect steel companies’ short-term price movements, in the medium to long term, steel prices and the outlook for steel prices are the key drivers.

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Steel prices

As for steel prices, they’re dependent on underlying demand-supply dynamics, like other metals. The construction and automotive sectors are the leading steel end consumers. Domestic steel production and steel imports contribute to US steel supply.

Steel import penetration levels have been higher over the last few years. US steel producers have long blamed imports for their woes. However, in a reprieve to the US steel industry, President Donald Trump imposed a 25% tariff on US steel imports in March. The tariffs were imposed under Section 232 of the Trade Expansion Act of 1962 after a US Commerce Department investigation found that steel imports were a threat to US national security.

In this series, we’ll look at some recent demand-supply indicators that should help us gauge the steel industry’s health. Let’s start by looking at October’s steel import data in the next article.


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