US Raw Steel Output Rises as Capacity Utilization Tops 80%

Anindya Barman - finance.yahoo.com Posted 5 years ago
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U.S. raw steel production for the week ending Dec 29 climbed on a year-over-year basis as American steel mills operated above 80% of their capacity, according to the latest weekly report from the American Iron and Steel Institute (“AISI”), an association of North American steel makers.

Per data released by the AISI, domestic raw steel production was 1,899,000 net tons for the reported week, marking a 13.3% rise from production of 1,676,000 net tons for the same period a year ago. Reported weekly production also represents an increase of 1.6% from production of 1,870,000 net tons logged for the week ending Dec 22.

Capacity utilization (a key metric in the steel industry) for the reported week also showed gain on both year-over-year and weekly comparison basis. U.S. steel mills operated at 81% of their capacity last week. Capability utilization rate for the reported week increased from 71.9% a year ago and 79.8% in the previous week, per the AISI.  

By regions, production from Great Lakes, Southern, North East, Midwest and Western were 733,000 net tons, 668,000 net tons, 213,000 net tons, 207,000 net tons and 78,000 net tons for the reported week, respectively.

Overall raw steel production (on an adjusted basis) through Dec 29 was 95,063,000 net tons at a capability utilization rate of 78.3%, up 6.2% from 89,483,000 net tons recorded in the same period a year ago at a capability utilization rate of 74%.

According to the AISI, production capability for fourth-quarter 2018 is roughly 30.8 million tons compared with 30.6 million tons a year ago and 30.8 million tons for the third quarter of 2018.  

Trade Actions Boost Capacity

The 25% tariffs on steel imports, which the Trump administration levied in March 2018, have helped U.S. steel industry capacity break above the important 80% level – the minimum rate required for sustained profitability of the industry. The U.S. Department of Commerce earlier said that the trade actions are aimed at increasing domestic steel production to approximately an operating rate of 80% that reflects a healthy industry.

The tariffs are driving production capacity of U.S. steel producers amid lower imports. According to the AISI, total and finished domestic steel imports were down 10.4% and 13.3% year over year, respectively, through the first eleven months of 2018.

Improved capacity boosted U.S. steel production in 2018. Per the World Steel Association ("WSA"), crude steel production increased 5.7% to 79.2 million tons (Mt) in the United States during the first eleven months of 2018.

A number of U.S. steel producers are investing to ramp up production capabilities and upgrade facilities. United States Steel Corp. X 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.

Nucor Corp. NUE is also significantly investing in a number of expansion programs to beef up capacity. These include a $650-million investment for expansion of the production capability of its flat-rolled sheet steel mill, Nucor Steel Gallatin, in Kentucky. The move will enhance the production capability of the plant to roughly 3,000,000 tons from 1,600,000 tons annually.

Steel Dynamics, Inc. STLD is also 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 (“EAF”) flat roll steel mill in the United States that is expected to have a production capacity of roughly 3 million tons annually.

Steel Stocks Worth Considering

A couple of stocks currently worth a look in the steel space are Commercial Metals Company CMC and Gerdau S.A. GGB. While Commercial Metals carries a Zacks Rank #1 (Strong Buy), Gerdau is a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Commercial Metals has an expected earnings growth of 49% for the current fiscal year. Earnings estimates for the current fiscal year have been revised 9.4% upward over the last 60 days.

Gerdau has an expected earnings growth of 28.6% for the current year. Earnings estimates for the current year have been revised 5.9% upward over the last 60 days.

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