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US Raw Steel Output Jumps Y/Y on Higher Capacity Utilization

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U.S. raw steel production for the week ending Dec 8 expanded on a year-over-year basis on the heels of improved capacity utilization rate, according to the latest report from the American Iron and Steel Institute ("AISI") – an association of North American steel makers.

Per AISI, domestic raw steel production was 1,876,000 net tons for the reported week, an 11.9% jump from production of 1,676,000 net tons for the same period a year ago. However, the reported weekly production edged down 0.8% from production of 1,892,000 net tons reported a week ago (ending Dec 1).

U.S. steel mills operated at 80% of their capacity last week – the minimum rate required for sustained profitability of the industry. Capability utilization rate for the reported week increased from 71.9% a year ago, according to data released by the AISI.  Capability utilization for the previous week was 80.7%.

By regions, production from Great Lakes, Southern, North East, Midwest and Western were 694,000 net tons, 680,000 net tons, 224,000 net tons, 191,000 net tons and 87,000 net tons for the reported week, respectively.

Overall year-to-date raw steel production was also above the year-ago levels on higher utilization. Adjusted year-to-date production through Dec 8 was 89,404,000 net tons at a capability utilization rate of 78.2%, up 5.9% from 84,456,000 net tons recorded in the same period a year ago at a capability utilization rate of 74%.  

Tariffs Bring U.S. Steel Industry Back to Life

The 25% tariff 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 U.S. Department of Commerce earlier this year said that the trade actions are aimed at increasing domestic steel production to approximately an operating rate of 80% that reflects a healthy industry.

U.S. capacity utilization rate was estimated at 72% in 2017, below the 80% mark. A deluge of subsidized imports hurt utilization last year.

The tariffs are boosting production capacity of U.S. steel producers amid declining imports. According to the AISI, based on preliminary U.S. Census Bureau data, total and finished domestic steel imports are down 10.6% and 13.4% year over year, respectively, year to date (through the first ten months of 2018) to roughly 29.44 million net tons and 22.08 million net tons, respectively.

Finished steel import market share was estimated at 21% year to date. The AISI expects annualized total and finished steel imports to drop 7.4% and 10.4% year over year, for 2018.

U.S. steel production has gone up this year on the back of improved capacity. Per the World Steel Association ("WSA"), crude steel production shot up 10.5% to 7.6 million tons (Mt) in the United States in October and also increased 5.1% to 71.7 Mt during the first ten months of 2018.

The AISI also recently reported a 6% year over year increase in U.S. steel shipments to 8,174,754 net tons for October 2018. Year-to-date shipments (through the first ten months) were 79,643,381 net tons, also up 4.6% year over year.

A number of U.S. steel producers including Nucor Corp. (NUE - Free Report) and Steel Dynamics, Inc. STLD are investing to ramp up production capabilities and upgrade facilities.

Steel Stocks Worth a Look

A couple of stocks currently worth considering in the steel space are EVRAZ plc EVRZF and POSCO PKX. While EVRAZ carries a Zacks Rank #1 (Strong Buy), POSCO is a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

EVRAZ has an expected earnings growth of 195.8% for 2018. Earnings estimates for the current year have been revised 4.4% upward over the last 60 days.

POSCO has an expected earnings growth of 20.7% for 2018. Earnings estimates for the current year have been revised 7.3% upward over the last 60 days.

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