U.S. Raw Steel Production Ticks Up As Great Lakes Gain

U.S. raw steel production for the week ending Dec 15 nudged up 0.7% on a week-on-week basis on higher production from steel mills in the Great Lakes region, according to the latest 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 1,890,000 net tons for the reported week, marking a rise from production of 1,876,000 net tons for the week ending Dec 8. Reported weekly production also represents a surge of 12.8% from production of 1,676,000 net tons logged for the same period a year ago.

Capacity utilization (a key metric in the steel industry) for the reported week also showed gain on weekly and year-over-year comparison basis. American steel mills operated at 80.6% of their capacity last week. Capability utilization rate for the reported week increased from 80% in the previous week and 71.9% a year ago, per the AISI.

By region, output from Great Lakes raked in a 4.6% gain on a weekly basis to 726,000 net tons in the reported week. Mills in the North East produced 216,000 net tons of raw steel, down 3.6% from the previous week. Production from both Southern (NYSE:SO) and Western regions fell 0.6% to 676,000 net tons and 6.9% to 81,000 net tons for the reported week, respectively. The Midwest region produced 191,000 net tons of raw steel, same as a week ago.

Overall year-to-date raw steel production was above the year-ago levels on higher utilization. Adjusted year-to-date production through Dec 15 was 91,294,000 net tons at a capability utilization rate of 78.2%, up 6% from 86,131,000 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.

Broad-based 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 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.

The tariffs are driving production capacity of U.S. steel producers amid lower imports. U.S. steel production has gone up this year on the back of improved capacity. A number of U.S. steel producers including Nucor Corp. (NYSE:NUE) and Steel Dynamics, Inc. (NASDAQ:STLD) are investing to ramp up production capabilities and upgrade facilities.

The trade tariffs have also provided a thrust to U.S. steel prices this year as reflected by the significant rally in benchmark hot-rolled steel prices, providing margin benefits to U.S. steel producers. While there are still uncertainties surrounding tariffs including exemptions of countries, they should provide further cushion to American steel producers.

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