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Are Steel Oversupply Concerns Unfounded?

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Steel oversupply

Some observers have pointed out that US steel markets could witness oversupply that could depress prices. To be sure, we saw a plant restart by U.S. Steel (X) last year. Nucor (NUE) and Steel Dynamics (STLD) have announced a slew of new projects that would add to US steel production capacity. But are US steel markets staring at an oversupply situation? Let’s discuss this in perspective.

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Section 232 tariffs

To be sure, US steel production has been on an uptrend after President Trump imposed Section 232 tariffs in March. Last year, US steel production rose 6.2% year-over-year. In absolute terms, US steel production rose ~5.5 million tons. The calculations are based on the American Iron and Steel Institute’s weekly steel production data until December 29.

Meanwhile, while US steel production has risen, it has been accompanied by falling imports. According to the Census Bureau’s final data, US steel imports fell by 3.2 million tons in the first nine months of 2018 as compared to the corresponding period in 2017. Preliminary data showed a small rise in October imports. Imports likely fell in November and December as well. However, the November steel imports data is yet to be published due to the government shutdown.

Nonetheless, as of now, higher steel production doesn’t seem to be a problem for US steel markets (AKS), as it’s leading to import substitution. However, if the Section 232 tariff is watered down, we could see an increase in imports. We’ll discuss this in detail in the next article.

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