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US Steel Production Continues to Sag Despite Decent Demand


The World Steel Association, the global body of major steel producers, expects US steel demand to fall 0.4% year-over-year in 2015. However, if we look at the positive demand indicators, US steel demand could manage to grow at a somewhat better rate.

There’s a big disconnect when it comes to steel production. In this part of the series, we’ll analyze how US steel production is shaping up.

Steel production down

The above graph shows US steel production data. The AISI (American Iron and Steel Institute) releases the data on a weekly basis. As of July 11, US steel production fell 7.6% compared to the corresponding period last year. The steep hike in imports earlier this year is a possible reason behind the fall in US steel production.

However, steel producers like US Steel (X) and AK Steel (AKS) could benefit from a new trade bill that provides more teeth in filing trade cases.

Capacity utilization ratio

Capacity utilization ratio represents the actual production as a percentage of total installed production capacity. It’s a key metric for investors in the metals and mining industry (XME).

US steel industry’s capacity utilization ratio fell to 72.4% in the week ended July 11, compared to 77.6% last year. A ratio of 80% is generally regarded as a healthy sign for the industry. Lower capacity utilization ratio negatively impacts the profitability of steel companies.

Steel Dynamics (STLD) has one of the highest capacity utilization ratios of all the steel producers. It currently forms 0.30% of the SPDR S&P Midcap 400 ETF (MDY).

In the next part, we’ll analyze the recent trend in steel scrap prices.




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