US steel production

Domestic steel production is a major demand driver for Cleveland-Cliffs’ (CLF) iron ore pellets. US steel production has followed an upward trend since Donald Trump imposed Section 232 tariffs in March 2018. Partly due to these tariffs, the United States produced 95 million tons of steel last year, the highest production since 2007. According to the AISI (American Iron and Steel Institute), domestic steel mills had produced 20.3 million tons of steel year-to-date as of March 16, implying a 6.7% gain YoY (year-over-year).

Steel’s Higher Capacity Utilization Is Good News for CLF

Capacity utilization rising

The US steel industry’s (X) capacity utilization is also following an upward trend, mainly due to declining imports. The AISI reported that steel mills’ capacity utilization rose 5.7 percentage points YoY to 82.9% in the week ended March 16. US capacity utilization is averaging at 81.4%, higher than the average of 76.6% seen a year ago. Import tariffs have helped the industry break above 80% capacity utilization.

Benefiting Cliffs

During CLF’s Q4 2018 earnings call, CEO Lourenco Goncalves said that the current capacity utilization of 81% is the highest in a decade and “clearly reflects a healthy demand for steel in the domestic market.” He expects demand for CLF’s iron ore pellets to remain strong, boosting prices. Higher capacity utilization in the US (SPY) (DIA) steel industry is also positive for CLF peers U.S. Steel Corporation (X), AK Steel (AKS), ArcelorMittal (MT), and Nucor (NUE).

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