Steel capacity utilization might peak the same time as prices do

The steel capacity utilization rate has quickly recovered to pre-pandemic levels; however, the market may be getting ahead of itself.

For the current week ending June 19, 2021, steel production represents a 44.6% increase from the same period in 2020.

American Iron and Steel Institute

Summary:

• Prices are likely to move lower as planned capacity, and therefore the steel capacity utilization rate, continue higher through the remainder of 2021, according to KeyBanc’s Phil Gibbs.
• Gibbs also stated that the steel capacity utilization rate is approaching pre-pandemic levels.  
• According to the American Iron and Steel Institute Institute, the steel capacity utilization rate was 82.9% the weeking ending June 19, 2021.  The rate was a mere 56.8% during the same week last year.
• Last year, the utilization rate suffered.  According to Department of Commerce data, overall capacity utilization in 2020 averaged 68.9%, down from the 2019 annual average of 79.3%.

AEGIS Thoughts: American steel producers have greatly benefitted from a rebound in demand and prices as the US begins to reopen from pandemic restrictions. However, production could overheat, thereby oversupplying the market while market prices are elevated.  Even if the economy remains robust, an increase in supply could keep prices from marching higher.