U.S. Raw Steel Production Nudges Down as Capacity Slips

24 June 2015

U.S. raw steel production for the week ending June 20 contracted 1.2% on a week-on-week basis on reduced capacity utilization, according to the latest report from the American Iron and Steel Institute ("AISI") - an association of North American steel makers.

Capacity utilization (a key metric in the steel industry) for the reported week showed a modest decline on a weekly comparison basis. Moreover, overall year-to-date production still lags behind year-ago levels.

Per data released by AISI, domestic raw steel production was 1,726,000 net tons for the reported week with a capability utilization rate of 73%. This represents a decline from production of 1,747,000 net tons and capability utilization rate of 73.9% for the week ending June 13. Reported weekly production also dropped 8.6% from the same period a year ago.

By region, output from Great Lakes edged down 0.5% on a weekly basis to 618,000 net tons in the reported week. Production from North East fell 3.9% from the previous week to 219,000 net tons. Output from Midwest and Southern regions sagged 1.4% and 1.3%, respectively, to 210,000 net tons and 591,000 net tons, respectively. Mills in the Western region produced 88,000 net tons of raw steel, up 2.3% from a week ago, making it the only region to witness a production gain.

Adjusted year-to-date production through June 20 clocked 41,837,000 net tons at a capability utilization rate of 72.4%. This represents a 7.4% decline from 45,172,000 net tons during the same period a year ago. Capability utilization rate for the period also slid from 77.3% recorded last year.

According to AISI, production capacity for the second-quarter 2015 is roughly 30.7 million tons compared with 31.3 million tons a year ago and 30.4 million tons for the first quarter of 2015.   

U.S. steel mills are struggling to cope with a torrent of unfairly traded imports of steel products. American steel makers including Nucor NUE , U.S. Steel X , AK Steel AKS , Steel Dynamics STLD and Commercial Metals Co. CMC are feeling the pinch from falling steel prices as cheap imports continue to flow into the domestic market due to foreign producers' overcapacity. A stronger dollar has made the U.S. an attractive market for steel imports.

In addition to high levels of subsidized imports from countries including South Korea and China, the U.S. steel industry is also hammered by depressed capacity utilization and weak demand in the energy space (a key end-use market) as several exploration companies cut their capital expenditure budgets in the face of the oil price slump.       

According to AISI, steel shipments are down 9.5% year over year in the U.S. so far this year. On the other hand, imports continue to make inroads in the domestic market with import permit applications rising 3% over the previous month in May. Total and finished steel imports are up 7% and 20% year over year, respectively, so far in 2015. Estimated year-to-date market share of finished steel imports is 32%, which is higher than 28% recorded for full-year 2014.

World Steel Association ("WSA") - the international trade body for the iron and steel industry - said yesterday that U.S. crude steel production tumbled 8.5% year over year to 6.8 million tons in May, marking the fourth straight month of decline this year. The WSA envisions apparent steel use in the U.S. to contract 0.4% year over year in 2015.

While steel market fundamentals are expected to remain challenging in the U.S. in 2015, a gradually healing economy, strength in the automotive space and a rebound in construction markets are expected to support steel demand in the country.