Steel is the physical backbone of the global economy, and trends in steel prices offer some insight into the strength of the investment.

These signals can often be clouded by trade flows, especially as China has been dumping steel into the US. However, since the steel trade war, American manufacturing is much more of a domestic industry than before, and that makes it a better economic barometer.

Major U.S. steelmaker Steel Dynamics today offered an update on Q2 operations and forecast earnings that were slightly below estimates, sending shares down 4%. More interesting are the details in the report.

The non-residential construction sector remains solid, further evidenced by the company’s strong demand for steels for long products. In addition, continued onshoring of manufacturing, along with a strong US infrastructure program and industrial construction, supports strong demand in the coming years.

There is ample and growing evidence that this effect is real, with huge spending on microchip foundries and other operations. What is not said here, but implied, is that the residential side has slowed down. That’s a headwind for steel prices, but it may only be temporary as U.S. home prices have held up much better than expected this year. American housing will eventually have to be solved by construction.

Another interesting news Press Release is in stock:

Recent positive data from the steel service center sector points to low customer inventory levels, which the company believes will cause inventory reductions and support steel product prices.

Given the bearish sentiment in the markets and the inventory mess during covid, I suspect this is not just a problem in steel service centers. If the US economy shows renewed momentum or increased confidence, we could see broader signs of restocking, triggering something of a virtuous cycle.

Finally, there is news from steel prices. While far from all-time highs during the covid shortage, they have settled at $900 per tonne. Historically, these are high prices.

“Steel order activity remains solid from the automotive, construction, industrial and energy sectors,” Steel Dynamics said.

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