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The Zacks Analyst Blog Highlights Nucor, ArcelorMittal, Olympic Steel, Commercial Metals and TimkenSteel

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For Immediate Release

Chicago, IL – May 27, 2022 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Nucor Corp. (NUE - Free Report) , ArcelorMittal S.A. (MT - Free Report) , Olympic Steel, Inc. (ZEUS - Free Report) , Commercial Metals Co. (CMC - Free Report) and TimkenSteel Corp. .

Here are highlights from Thursday’s Analyst Blog:

Global Steel April Output Dips as Covid Restrictions Hit China

Global crude steel production fell for the ninth straight month in April, pulled down by a decline in output from the top producer China, impacted by new restrictions following a surge in coronavirus cases in the country. Production went up in India while both the United States and Japan saw declines for the reported month.

According to the latest World Steel Association ("WSA") report, crude steel production for 64 reporting nations dropped 5.1% year over year to 162.7 million tons (Mt) in April. Output fell across most regions in the reported month.

China Production Continues Downtrend

Crude steel production from China fell for the tenth straight month in April. Production was hit by government-mandated stringent lockdowns as the country is battling its worst Covid outbreak since the start of the pandemic. China's steelmaking hub Tangshan implemented a new round of lockdowns to tackle the rise in Covid-19 cases after fully lifting a 20-day restriction on Apr 11.

Per the WSA, production in China, which accounts for more than half of the global steel output, slipped 5.2% year over year to 92.8 Mt in April. Output, however, improved from 88.3 Mt in March. Production tumbled 10.3% year over year to 336.2 Mt in the first four months of 2022.

China's steel output has been on a downward spiral since July after hitting a record high of 99.5 Mt in May 2021. China's steel output fell 3% year over year to 1.03 billion tons in 2021, per the country's National Bureau of Statistics. Beijing has pledged to further cut its steel output on a year-over-year basis in 2022 in a bid to control carbon emissions. The steel sector is among the biggest sources of carbon emissions in China, accounting for roughly 15% of national carbon emissions.

Steel demand in China has softened since the second half of 2021 due to a slowdown in the country's economy. A downturn in the country's real estate sector contributed to the slowdown. Real estate accounts for roughly 40% of China's steel consumption.

New lockdowns are also taking a significant toll on the world's second-largest economy. A slowdown in manufacturing activities has led to the contraction in demand for steel in China. The manufacturing sector has taken a beating as the virus resurgence has hit demand for manufactured goods and the supply chains. The WSA sees steel demand to remain flat in China this year after declining 5.4% in 2021 as Beijing makes efforts to beef up infrastructure investment and stabilize the real estate market.

How Other Major Producers Fared in April?

Among the other major Asian producers, India — the second-largest producer — saw a 6.2% rise in production to 10.1 Mt in April. Steel demand has picked up in India on a revival in economic activities post the deadly second wave and the subsequent Omicron outbreak. Steel consumption has been driven by strengthening construction activities.

Production in Japan fell 4.4% to 7.5 Mt in the reported month. Japanese steel producers have been grappling with a slowdown in the automotive market in the wake of semiconductor and other key component shortages. Crude steel output in South Korea also slipped 4.1% to 5.5 Mt. Consolidated output went down 4% to 121.4 Mt in Asia and Oceania largely reflecting the decline in China.

In North America, crude steel production dropped 3.9% to 6.9 Mt in the United States in April. Output has been capped by raw material shortages triggered by the ongoing Russia-Ukraine conflict. U.S. steel producers are bearing the brunt of a spike in costs of key inputs due to war-led supply disruptions. Overall production in North America went down 5.1% to 9.4 Mt.  

In the EU, production from Germany, the biggest producer in the region, ticked down 1.1% to 3.3 Mt. Total output was down 5.4% in the EU to 12.3 Mt. European steel makers are reeling under the effects of soaring energy costs, made worse by Russia's invasion of Ukraine. The spike in electricity costs is weighing on steel producers in Europe, especially electric arc furnace producers, due to an increase in steel-making costs.  

Output in the Middle East tumbled 14.5% to 3.3 Mt in April. Iran, the top producer in the region, saw a 20.7% decline to 2.2 Mt. Production in Africa went down 5.4% to 1.2 Mt.

Among other notable producers, output from Turkey rose 1.6% to 3.4 Mt. Production from Brazil, the biggest producer in South America, dropped 4% to 2.9 Mt in the reported month.

Steel Industry Losing Momentum as Prices Retreat

The steel industry rebounded strongly last year after the pandemic-led stupor, thanks to solid pent-up demand and a rally in steel prices to historic highs. The resumption of operations across major steel-consuming sectors such as construction and automotive, following the easing of lockdowns and restrictions globally, led to an uptick in steel demand.

Steel prices catapulted to all-time highs in 2021 on solid demand, higher raw material costs, tight supply and low steel supply-chain inventories globally. Notably, U.S. steel prices skyrocketed in 2021 on supply tightness and robust demand. The benchmark hot-rolled coil ("HRC") prices hit a record high of $1,960 per short ton in late September 2021, according to S&P Global Platts.

However, since October, HRC prices lost steam after peaking in September 2021, pulled down by stabilization of demand, improved supply conditions and higher steel imports. Nevertheless, since Russia invaded Ukraine, steel prices significantly rebounded on supply worries and a spike in lead times.

U.S. HRC prices shot up to above $1,400 per short ton in April 2022 after slumping to nearly $1,000 per short ton at the beginning of March 2022. Steel prices also witnessed a significant rally in Europe as the war threatened supplies from the two major producing nations.

Both Russia and Ukraine are key producers and suppliers of steel and steel-making raw materials, including coking coal and pig iron. The ongoing conflict led to a spike in steel input costs due to the disruptions in the supply chains.

However, after surging to nearly $1,500 per short ton around mid-April, the rally in HRC prices has stalled as prices have witnessed a downward correction, currently hovering around $1,300 per short ton. The downward drift reflects shorter lead times and a slowdown in demand.

Mills are also negotiating lower prices. Prices have also witnessed a correction worldwide over the recent weeks as a slowdown in China — due to new lockdowns — has dwindled demand for steel. These factors are likely to keep steel prices under pressure over the near term.

Steel Stocks Worth a Look

A few stocks currently worth considering in the steel space are Nucor Corp., ArcelorMittal S.A., Olympic Steel, Inc., Commercial Metals Co. and TimkenSteel Corp.

Nucor sports a Zacks Rank #1 (Strong Buy). It has a projected earnings growth rate of 17.4% for the current year. You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for NUE's current-year earnings has been revised 37% upward over the last 60 days. Nucor has a trailing four-quarter earnings surprise of roughly 2.2%, on average. Its shares are up around 15% over the past six months.

ArcelorMittal sports a Zacks Rank #1. The consensus estimate for MT's current-year earnings has been revised 30.3% upward over the last 60 days.

ArcelorMittal has surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 17.8%. MT shares have gained around 12% over the past six months.

Olympic Steel carries a Zacks Rank #1. The consensus estimate for ZEUS's current-year earnings has been revised 109% upward over the last 60 days.

Olympic Steel has surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average being 44.9%. ZEUS shares have surged around 65% over the past six months.

Commercial Metals carries a Zacks Rank #2 (Buy) and has an expected earnings growth rate of 147.9% for the current fiscal year. The consensus estimate for CMC's current fiscal-year earnings has been revised 13.7% upward over the last 60 days.

Commercial Metals beat the Zacks Consensus Estimate for earnings in three of the last four quarters while missing once. It has a trailing four-quarter earnings surprise of roughly 16%, on average. CMC has gained around 22% over the past six months.

TimkenSteel carries a Zacks Rank #2 and has a projected earnings growth rate of 29.3% for the current year. The Zacks Consensus Estimate for TMST's current-year earnings has been revised 16.9% upward over the last 60 days.

TimkenSteel beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 39.8%. TMST shares have shot up around 52% over the past six months.

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