Raw steel production in the U.S. for the week ending May 16 nudged up 2.4% over the previous week, according to the American Iron and Steel Institute ("AISI") – an association of North American steel makers. Capacity utilization also improved on a weekly basis.

As per the data released by AISI, domestic raw steel output clocked 1,705,000 net tons for the reported week. Capability utilization rate for the week was 72.1%. This compares favorably with production of 1,665,000 net tons and capability utilization rate of 70.4% for the week ending May 9. However, the reported weekly production represents an 8.3% drop from the same period a year ago.

By region, production in the North East for the reported week was 221,000 net tons while Great Lakes produced 613,000 net tons of raw steel. Output from Midwest, Southern and Western regions were 210,000, 575,000 and 86,000 net tons, respectively.

Adjusted year-to-date output through May 16 was 33,210,000 net tons at a capability utilization rate of 72.3%. This represents a 7.2% decline from 35,785,000 net tons during the same period a year ago. Capability utilization rate for the period also fell from 77% recorded last year.

According to AISI, production capability 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. steelmakers including U.S. Steel (X - Analyst Report), Nucor (NUE - Analyst Report), AK Steel (AKS - Analyst Report), Steel Dynamics (STLD - Snapshot Report) and Commercial Metals Company (CMC - Snapshot Report) remain hamstrung by challenging steel market fundamentals and weak pricing. Overcapacity remains a drag for the domestic steel industry.

According to a recent World Steel Association (“WSA”) report, apparent steel use in the U.S. is expected to contract 0.4% year over year to 106.5 million tons in 2015. While demand is expected to rebound next year with a projected 0.7% gain, a stronger greenback may dent growth prospects.

The U.S. market is seeing a flood of unfairly traded imports of steel products. This, in addition to the oversupply, is pressurizing prices and prospects of steel producers. Imports of flat-rolled finished carbon and steel products zoomed around 60% between 2013 and 2014. Moreover, the estimated market share for finished steel imports was as high as 34% of the market in first-quarter 2015.

Despite the U.S. steel industry’s depressed capacity utilization, imports continue to make inroads in the domestic market due to foreign producers’ overcapacity. A recovering economy coupled with a stronger dollar has made the U.S. an attractive market for finished steel imports.

Adding to the pain is lower crude oil prices given the steel industry’s 10% exposure to the energy sector. Several energy companies are dialing back drilling plans in the face of the oil price slump, thereby affecting steel demand in the energy space.

While the steel market environment is expected to remain challenging in the U.S., strength in the automotive market and a rebound in construction activity represent tailwinds for the country’s steel industry. The automotive sector should continue to gain from lower fuel prices and an improving job market while the housing market is expected to continue its recovery momentum this year, which augurs well for steel usage.