US Steel Production Rises As Use Rises Over 80% Due To Growing Demand
Crude steel production in the United States increased on a weekly basis for the week ending May 29 as capacity utilization increased above the significant level of 80% amid strong domestic demand .
According to the latest weekly report from the American Iron and Steel Institute (“AISI”), domestic crude steel production was 1,836,000 net tons for the week ending May 29, an increase of 2.4%. compared to production of 1,793,000 net tonnes for the week ending May 22. weekly production also represents a 50.1% increase over production of 1,223,000 for the same period a year ago.
Strong demand increases capacity utilization
Capacity utilization – a key metric in the steel industry – was 81.5% for the reported week, up from the previous week’s reading of 79%, indicating improved activity. The capacity utilization rate for the reported week also increased significantly from 54.6% a year ago, per AISI.
Notably, the capacity utilization rate reached 51.1% in May 2020 – the lowest level for many years – after remaining above the 80% level (the minimum rate required for sustained profitability of steel industry) in early 2020 as the coronavirus pandemic squeezed demand across major steel-consuming markets. Utilization started to improve with a rebound in demand after the decline observed in the first half of 2020. Domestic steel production also picked up thanks to an increase in capacity utilization.
Meanwhile, adjusted production year-to-date through May 29 was 35,913,000 net tonnes at a capacity utilization rate of 78.1%, up 9.5% from 32,811,000 net tonnes recorded in the same period a year ago, AISI noted. The capacity utilization rate for the period is also up from 69.9% recorded last year.
By region, Great Lakes production increased about 2% on a weekly basis to 635,000 net tonnes in the reported week. Production in the South region also increased by around 4% to 793,000 net tonnes. The Northeast saw an increase of about 0.7% in production to 147,000 net tonnes for the reported week. Factories in the Midwest produced 187,000 net tonnes of crude steel, up about 2% from last week. Production fell about 7% in the Western region to 74,000 net tonnes.
U.S. steel industry benefits from surging demand and prices
The US steel industry made a strong comeback in 2021 after being hit hard by the pandemic last year, thanks to a strong recovery in domestic demand and soaring steel prices.
The coronavirus devastated demand for steel in major end-use markets such as construction and automobiles in the first half of 2020. The destruction of demand caused by the pandemic has also forced US steel mills to reduce their production, with capacity utilization falling to a multi-year low in the first half. Coronavirus-induced shutdowns in the North American auto industry have contributed to production cuts amid declining demand for steel.
However, strong pent-up demand from major steel-consuming industries and soaring steel prices woke the industry from its pandemic-induced slumber. Steel demand started to recover in the third quarter of 2020 with the resumption of operations in the main steel consuming sectors, following the relaxation of restrictions.
American steelmakers are recording strong orders in the automobile industry. The recovery in the auto industry has gathered pace following closures caused by a pandemic due to strong customer demand. The automotive rebound is driving the demand for flat-rolled steel products.
The construction sector also rebounded from a resumption of projects that had been blocked earlier due to supply chain disruptions and labor shortages. In particular, the non-residential construction market remains resilient.
The rebound in demand contributed to the increase in the capacity utilization of the US steel industry during the restart of unused capacity. Additionally, steel prices in the United States have risen significantly driven by a pickup in demand, supply shortages due to the pandemic, and higher steel input costs.
Hot-rolled coil (“HRC”) benchmark prices plunged to a pandemic-driven multi-year low of around $ 440 per short ton in August 2020. However, HRC prices have started to recover from September 2020 and have catapulted to levels not seen since. 2008 on the consecutive price increases of US steel mills, tight supply conditions, lower steel imports due to high tariffs and strong pent-up demand. Prices broke above the $ 1,600 per short ton level for the first time last month as the bull run continued. Notably, HRC prices have more than tripled from the August 2020 low.
The imbalance between supply and demand has largely contributed to the sharp rise in steel prices. Strong demand, higher raw material costs and supply constraints are expected to continue to push HRC prices up at least until the first half of 2021.
Strong domestic demand and rising prices helped US steel companies post strong first quarter results. Domestic steel mills are benefiting from the expansion of spreading, as a sharp increase in HRC prices more than offset the higher costs of scrap. Strengthening demand and a favorable pricing environment should help US steel producers maintain momentum in the June quarter.
Steel stocks are worth a look
Some actions currently to be considered in the field of steel are Nucor Company NAKED, Dynamic Steel, Inc. STLD, Schnitzer Steel Industries, Inc. SCHN and Olympic Steel, Inc. ZEUS, each sporting a rank 1 of Zacks (strong buy). You can see The full list of today’s Zacks # 1 Rank stocks here.
Nucor has forecast a 238% profit growth rate for the current year. Zacks’ consensus estimate for current year earnings has also been revised up 43.6% in the past 60 days. The company has also beaten Zacks’ consensus estimate for earnings in three of the past four quarters, averaging 46.2%. Its shares have also jumped about 86% in the past six months.
Steel Dynamics has forecast a profit growth rate of 196.1% for the current year. It also beat Zacks’ consensus estimate for earnings for each of the past four quarters, averaging 10.5%. The consensus estimate for the current year has also been revised upward by 39.2% over the past 60 days. The stock is also up around 64% in the past six months.
Schnitzer Steel has forecast a profit growth rate of 1,144.2% for the current year. Zacks’ consensus estimate for the current fiscal year has also been revised upwards to 57.4% over the past 60 days. The company also beat Zacks’ consensus estimate for earnings for each of the past four quarters, averaging 78.5%. Its shares have also climbed about 108% in the past six months.
Olympic Steel has forecast a profit growth rate of 1,418.9% for the current year. The consensus estimate for the current year has also been revised upwards by 86.3% over the past 60 days. The company has also beaten Zacks’ consensus estimate for earnings in three of the past four quarters, averaging 38.7%. The stock is also up about 120% in the past six months.
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