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Steel Import Penetration Remains at Elevated Levels

Mark O'Hara

An Investor’s Guide to October's Steel Import Data

(Continued from Prior Part)

Import penetration

Previously, we noted that US steel imports have fallen on a YoY (year-over-year) basis for seven consecutive months. However, along with the standalone steel import data, you should also look at the import penetration levels. Simply put, import penetration tells us how much of the domestic steel demand is met through imported steel products.

Import penetration falls

The graph above shows the import penetration figures released by the DOC (US Department of Commerce) based on the American Iron and Steel Institute data. It’s important to note that the data exclude semi-finished steel products in arriving at the steel import penetration. In the United States, semi-finished steel products like billets and slabs are further processed to produce steel products. ArcelorMittal (MT) is among the companies that import semi-finished steel products into the United States.

Still high

According to the DOC report, “Import penetration for steel mill products, excluding semi-finished products, decreased to 26.1% in September 2015 from 27.2% in August.” Import penetration levels have fallen in recent months, but they are still above comfort levels.

Moreover, falling steel imports point to subdued US steel demand. The World Steel Association expects US steel demand to fall 3% in 2015 as compared to the previous year. To add to the steel industry’s woes, metal service centers, including Reliance Steel & Aluminum (RS), are cutting down on their steel inventories. Inventory destocking is negatively impacting apparent steel demand. Please note that “apparent demand” also captures the changes in inventory, unlike “real demand.” The latter only accounts for the demand from end-users.

Steel companies, including United States Steel (X) and Steel Dynamics (STLD), voiced concern over the inventory destocking activity during their respective 3Q15 earnings calls. Currently, STLD forms 0.24% of the WisdomTree MidCap Dividend ETF (DON).

In the next part, we’ll explore why steel’s market conditions could continue to remain challenging despite the fall in steel imports.

Continue to Next Part

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