What Investors Should Read Into Latest Steel Production Numbers
US Steel: Industry Indicators Investors Should Track (Part 11 of 14)
Steel production
The American Iron and Steel Institute, or AISI, releases weekly steel production figures. AISI also releases the capacity utilization rate in the US steel industry. Simply put, capacity utilization represents the actual production as a percentage of total installed production capacity. Capacity utilization rate is a key driver of steel companies’ profitability.
Steel Dynamics, Inc. (STLD) has one of the highest capacity utilization rate. United States Steel Corporation (X) also achieved higher capacity utilization rate in the third quarter. That’s because it shut down several steel plants under its Carnegie Way.
Currently, both United States Steel and Steel Dynamics are among the top holdings of the SPDR S&P Metals and Mining ETF (XME).
Steel production rises sharply
The chart above shows trends in steel production and capacity utilization rate. Steel production in the week ending December 13, 2014, totaled 1880 thousand tonnes. This is a 5.1% increase over the same period last year. The capacity utilization rate was 78.2% last week.
Steel production is up ~0.7% year-to-date. The sharp increase in last week’s steel production looks more like a year-end phenomenon, when companies try to shore up production to meet annual production targets.
Steel demand has been strong
Steel demand has been relatively strong in US. The World Steel Association had forecast that North American steel demand would grow in excess of 5%. However, steel production is up by less than 1% in 2014. For more on this topic, read Steel consumption expected to grow at slower pace .
The remaining steel demand is met by imports. This has been the biggest risk facing the US steel industry. Steel companies such as AK Steel Holding Corporation (AKS) and Nucor Corporation (NUE) have filed several trade cases against these imports.
We’ll discuss the latest trends in steel imports in the next part of this series.
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