U.S. raw steel production for the week ending Mar 30 shot up year over year as steel mills in the country 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 1,913,000 net tons for the reported week, a 4.8% spike from production of 1,826,000 net tons for the same period a year ago. Reported weekly production, however, represents a 1.1% drop from production of 1,934,000 net tons logged for the week ending Mar 23.
Capacity utilization (a key metric in the steel industry) for the reported week also showed gain on year-over-year comparison basis. U.S. steel mills operated at 82.2% of their capacity last week. Capability utilization rate for the reported week increased from 78.3% a year ago, per the AISI. Capability utilization for the previous week was 83.1%.
By regions, production from Great Lakes, Southern, North East, Midwest and Western were 715,000 net tons, 725,000 net tons, 210,000 net tons, 187,000 net tons and 76,000 net tons for the reported week, respectively.
Overall raw steel production (on an adjusted basis) through Mar 30 was 24,208,000 net tons at a capability utilization rate of 81.8%, up 6.7% from 22,686,000 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 first-quarter 2019 is roughly 30.5 million tons compared with 30 million tons a year ago and 30.8 million tons for the fourth quarter of 2018.
Trump Tariffs Driving Capacity & Investment
The 25% tariffs on steel imports, which the Trump administration levied last year, has provided a reprieve to U.S. steel producers, who long struggled to cope with a tide of subsidized foreign imports. The punitive tariffs led to a decline in U.S. steel imports in 2018. Per the AISI, total steel imports dropped 11.5% year over year last year.
The tariffs are also boosting production capacity of U.S. steel producers amid lower imports. They 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.
Improved capacity boosted U.S. steel production last year. Per the World Steel Association ("WSA"), crude steel production increased 6.2% to 86.7 million tons in the United States in 2018. U.S. steel shipments also went up 4.8% year over year in 2018, per AISI.
The tariffs also provided a thrust to U.S. steel prices last year, allowing American steel makers including United States Steel Corp. (X - Free Report) , Nucor Corp. (NUE - Free Report) , Steel Dynamics, Inc. (STLD - Free Report) and AK Steel Holding Corp. (AKS - Free Report) to deliver solid earnings in 2018. A few of them racked up record earnings for the year.
Leveraging strong cash flows, a number of U.S. steel producers are investing heavily to beef up production capabilities and upgrade facilities. For example, Nucor is significantly investing in a host 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.
Nucor is also investing roughly $1.35 billion 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 project, which is expected to create around 400 full-time jobs, will strengthen the company’s plate product portfolio and enable it to build market leadership position in the U.S. plate market. The company said that trade actions and tax reform have provided it the confidence to make this investment.
Moreover, 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.
U.S. Steel also 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, 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.
U.S. Steel, Nucor, Steel Dynamics and AK Steel each currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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