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U.S. Raw Steel Output Up Y/Y as Capacity Remains Above 80%

Anindya Barman

U.S. raw steel production for the week ending Jun 1 climbed year over year as American steel mills operated above 80% of their capacity, per the latest weekly report from the American Iron and Steel Institute (“AISI”), an association of North American steel makers.

According to the AISI, domestic raw steel production clocked 1,890,000 net tons for the reported week, a 4.5% spike from production of 1,809,000 net tons for the same period a year ago. Reported weekly production, however, ticked down 0.1% from production of 1,892,000 net tons logged for the week ending May 25.

Capacity utilization (a key metric in the steel industry) for the reported week also jumped on year-over-year comparison basis. U.S. steel mills operated at 81.2% of their capacity last week. Capability utilization rate for the reported week increased from 77.2% a year ago, per the AISI.  Capability utilization for the previous week was 81.3%.

By regions, production from Great Lakes, Southern, North East, Midwest and Western were 741,000 net tons, 685,000 net tons, 203,000 net tons, 189,000 net tons and 72,000 net tons for the reported week, respectively.

Overall raw steel production (on an adjusted basis) through Jun 1 was 41,235,000 net tons at a capability utilization rate of 81.6%, up 6.2% from 38,842,000 net tons recorded in the same period a year ago at a capability utilization rate of 76.6%.

According to the AISI, production capability for second-quarter 2019 is roughly 30.3 million tons compared with 30.5 million tons a year ago and 29.9 million tons for the first quarter of 2019.  

Trade Actions Driving Capacity & Investment

The 25% tariffs on steel imports, which the Trump administration levied last year, have helped U.S. steel industry capacity break above the important 80% level – the minimum rate required for sustained profitability of the industry.

The tariffs are also driving production capacity of U.S. steel producers including United States Steel Corp. X, Nucor Corp. NUE, Steel Dynamics, Inc. STLD and AK Steel Holding Corp. AKS amid lower imports.

The punitive tariffs led to a decline in U.S. steel imports in 2018.  Moreover, total and finished steel imports have dropped roughly 8% and 17% year over year, respectively, through the first four months of 2019, per the AISI.

Improved capacity is also boosting U.S. steel production. Per the World Steel Association ("WSA"), crude steel production increased 6.7% year over year to 29.6 million tons in the United States for the first four months of 2019.

A number of U.S. steel producers are investing heavily to beef up production capabilities and upgrade facilities. For instance, Steel Dynamics is currently executing a number of projects that should add to capacity. The company is investing $1.7-$1.8 billion to build a new electric-arc-furnace flat roll steel mill in the United States that is expected to have an annual production capacity of roughly 3 million tons.

Nucor is also significantly investing in a host of expansion programs to beef up capacity. These include a roughly $1.35 billion investment to construct a new state-of-the-art plate mill in Kentucky that is expected to have a capacity to produce 1.2 million tons of steel plate products annually. The company said that trade actions and tax reform have provided it the confidence to make this investment.

Moreover, U.S. Steel restarted two blast furnaces last year at its integrated steelmaking plant, Granite City Works, in Illinois, which is expected to support the growing demand for steel made in the United States. The company, in February 2019, also restarted construction of an electric arc furnace steelmaking facility (with an expected annual capacity of 1.6 million tons) at its Tubular Operations in Fairfield. The company cited President Trump’s trade actions and improved market conditions as key drivers for the move.

Steel Stocks Worth Considering

A couple of stocks currently worth a look in the steel space are L.B. Foster Company FSTR and Ryerson Holding Corporation RYI. While L.B. Foster carries a Zacks Rank #1 (Strong Buy), Ryerson Holding has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

L.B. Foster has an expected earnings growth of 65.8% for the current year. Earnings estimates for the current year have been revised 14.8% upward over the last 60 days.

Ryerson Holding has an expected earnings growth of 112.2% for the current year. Earnings estimates for the current year have been revised 53.4% upward over the last 60 days.

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