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Will Oversupply Concerns Weigh Down Cleveland Cliffs’s Stock?

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Oversupply concerns

As we saw in the previous part of this series, all the major US (SPY) steelmakers are in the red for the year despite increasing protectionism from the Trump administration. As steel imports have declined considerably after tariffs hit imports, the concerns of oversupply in the domestic market have risen. All the stocks were down after Steel Dynamics (STLD) announced a new electric arc furnace at the end of November.

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Steel production on an uptrend

US steel production has been steadily increasing. In October, it was up 10.5% year-over-year (or YoY) to 7.6 million tons. The steel production in the Great Lakes area was 0.7% higher on a weekly basis for the week ended December 15, according to the American Iron and Steel Institute. The production of 1.89 million tons for the week also represented a surge of 12.8% compared to the production in the same week last year. Year-to-date, steel production is 6% higher.

Capacity utilization

The capacity utilization in the US steel industry (X) is also on an upward trend, mainly due to declining imports. For the week ended December 15, the capacity utilization for steel mills was 80.6%, compared to 71.9% a year ago. Import tariffs have helped the industry break above the level of 80% capacity utilization. However, with higher production and steel demand concerns from consumers, given higher steel prices in the United States (DIA), oversupply concerns have taken hold.

Credit Suisse (CS) downgraded the US steel sector amid these concerns. It downgraded Cleveland-Cliffs (CLF), Nucor (NUE), and Steel Dynamics.

In the next part of this series, we’ll see how tariffs are affecting the demand for US steel domestically and why that could be a problem.

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