US Steel Production Is Providing a Nice Tailwind to CLF Stock

Major US steelmakers such as AK Steel (AKS) are Cleveland-Cliffs’ (CLF) customers. Domestic steel demand is one of the major drivers for steelmakers’ production, which, in turn, drives Cleveland-Cliffs’ iron ore pellets.

US steel production has been on an uptrend since the Trump administration imposed import tariffs. In 2018, the US production rose 6.2% YoY to 95 million tons, the highest level since 2007.

According to the World Steel Association, the US produced 7.4 million tons of steel in April, 7.3% higher YoY. According to the AISI (American Iron and Steel Institute), US domestic steel production was 1.89 million tons for the week ended May 25, 4.6% higher YoY as compared to the same week last year. The adjusted year-to-date production was 39.4 million tons, 6.4% higher as compared to the same period last year.

Due to declining imports and higher domestic production, capacity utilization in the US steel industry is also increasing. The AISI reported that YTD through May 25, the capacity utilization for steel mills was 81.3% compared to 77.1% a year ago. Import tariffs have helped support domestic production, helping the industry break above the 80% capacity utilization level. However, given higher production and steel demand concerns, oversupply concerns have taken hold.

After the tariff announcement, US steel companies went on an investment spree and announced several new projects that would enhance US steel production capacity.  Last year, U.S. Steel (X) restarted two blast furnaces at Granite City. Nucor (NUE) and Steel Dynamics (STLD) also announced several growth projects. Some observers see rising domestic steel production capacity as a bearish driver for US steel prices.