ScrapPrices - U.S. raw steel production is on a downward spiral as the coronavirus pandemic has led to a slump in demand for steel across key end-use markets, including automotive. The demand slowdown has forced domestic steel mills to curtail production with capacity utilization dropping to a multi-year low.

Weekly Production Takes a Hit as Utilization Shrinks

Per the latest American Iron and Steel Institute (AISI) weekly report, domestic raw steel production clocked 1,534,000 net tons for the week ending Apr 4, reflecting an 8.1% drop from production of 1,670,000 net tons for the week ending Mar 28. Reported weekly production also tumbled 18.9% from production of 1,892,000 net tons logged for the same period a year ago. This follows a 12.7% year-over-year decline and 9.8% week-over-week drop for the week ending Mar 28.

Capacity utilization — a key metric in the steel industry — was 68.5% for the reported week, well below the key 80% level (the minimum rate required for sustained profitability of the industry). Capability utilization rate declined from the previous week’s reading of 71.6% and also dropped from 81.3% a year ago, per the AISI.  

Notably, the 25% tariff on steel imports, which the Trump administration had levied under Section 232 of the Trade Expansion Act of 1962, largely helped the U.S. steel industry capacity break above 80% in 2018. U.S. steel mills operated near or above that level for most part of 2019.

Meanwhile, by-region, output from Great Lakes fell roughly 10% on a weekly basis to 549,000 net tons in the reported week. Mills in the North East produced 194,000 net tons of raw steel, down around 4% from the previous week. Production in the Southern region dropped 7% to 602,000 net tons in the reported week. The Midwest region produced 139,000 net tons of raw steel, down 10% from a week ago. Output went down 17% in the Western region to 50,000 net tons.

Year to date (through Apr 4), raw steel production on an adjusted basis was 25,067,000 net tons at a capability utilization rate of 79.4%, down 2.7% from 25,773,000 net tons recorded in the same period a year ago at a capability utilization rate of 81.5%, the AISI noted.

Falling Demand, Steel Prices Taking Toll

Coronavirus has dealt a heavy blow to the U.S. steel industry. The lethal outbreak, which has so far claimed more than 82,000 lives and infected more than 1.4 million people in at least 180 countries, has rattled global stock markets and put the world economy on the edge.

The pandemic has dampened recovery in the U.S. steel industry which bore the brunt of a sharp decline in domestic steel prices and damaging impacts of the trade war last year.

Shares of U.S. steel companies gained some ground toward the end of 2019 on a recovery in domestic steel prices and the de-escalation in trade tensions following the announcement of the preliminary U.S.-China trade deal. However, the coronavirus-induced sell-off has triggered a bloodbath in steel stocks this year.

Shares of major American steel makers such as United States Steel Corp. X, Nucor Corporation NUE and Steel Dynamics, Inc. STLD have tanked roughly 43%, 34% and 33%, respectively, year to date.

United States Steel and Steel Dynamics currently carry a Zacks Rank #4 (Sell), while Nucor has a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Steel Producers industry has also lagged both the Zacks S&P 500 composite and the broader Zacks Basic Materials sector so far this year. The industry has declined 41.7% over this period compared with the S&P 500’s decline of 17.1% and broader sector’s fall of 30.1%.