Investing in steel companies: Key indicators to watch
Why the global outlook may affect US steel prices (Part 8 of 11)
Key indicators for steel companies
Previously in this series, we looked at the expected growth of steel consumption, according to data from the World Steel Association, or worldsteel— a global body of steel makers.
Apart from steel consumption, investors should track several other indicators. One of these is steel production. You can read more about the steel production data for August in the Market Realist series, Investing in steelmakers: A guide to August 2014 steel production.
What are the other key indicators for investors?
Investors in the steel industry should also track iron ore and coal prices. As you know, iron ore and coal are the key raw materials used to make steel. As the chart shows, iron ore prices have been in free fall, losing more than 30% this year. This is largely a result of a slowdown in steel demand from China, the biggest importer of iron ore.
Steel prices are another key indicator for investors. Any increase in steel prices directly benefits steel companies such as Steel Dynamics, Inc. (STLD), AK Steel Holding Corporation (AKS), Nucor Coporation (NUE), and Commercial Metals Company (CMC). Some of these companies are part of the SPDR S&P Metals and Mining ETF (XME)
Investors should be mindful of capacity utilization rate
Capacity utilization rate refers to the actual production level compared to maximum possible production. A capacity utilization rate of 80% means that the remaining 20% capacity is lying idle. This is more of a supply side metric. You can read more about this topic in Market Realist’s Why steel investors are mindful of capacity utilization rates.
Recently, World Steel Dynamics Inc presented a report about the increasing use of aluminum to senior executives of the steel industry. We’ll look at how this trend could affect the steel industry, next.
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