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Are Trump’s Tariffs Destroying Demand in the US Steel Sector?

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Steel demand

In the US steel sector, demand for steel drives US steelmakers’ (SLX) revenues. As a result, investors who are interested in Cleveland-Cliffs (CLF) will likely want to track US steel demand.

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Demand indicators

US steel demand indicators, especially from the housing and automotive sectors, have shown signs of peaking growth. The  Fed’s increase in interest rates should affect housing affordability, weighing demand down.

Investment in nonresidential construction is also taking a hit. During the third quarter, nonresidential fixed investment increased at an annualized rate of 0.8%, compared to growth of 11.5% and 8.7% in the first and second quarters, respectively.

Demand destruction?

According to a study from Business Forward, US steel consumers are paying 17.2% more for hot-rolled and cold-rolled steel than their foreign competitors. The report also says that the difference between US and competitors’ prices has gotten 1.8 times larger since February.

CRU, a leading steel industry research firm, expects a further fall in US steel demand as consumers choose to import finished products rather than buying raw materials domestically or importing it. According to CRU’s principal steel analyst, Josh Spoores, “You also will see substitution and once that comes, it is challenging for a switch back.”

US steelmakers and Cleveland-Cliffs have, however, remained quite positive about US (DIA)(SPY) steel demand. Cleveland-Cliffs expects demand to remain strong in the rest of 2018 and beyond.

However, while steel demand could remain supportive in the medium term, rising interest rates and higher steel prices have affected US steel demand. Amid the seasonal fourth-quarter demand slowdown, incremental production is coming in from U.S. Steel Corporation’s (X) Granite City, Illinois, facility, which could add to steel supply and lead to lower prices.

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