U.S. raw steel production has slumped nearly 17% this year as the coronavirus pandemic has squeezed demand for steel across major end-use markets. Ebbing demand has forced domestic steel mills to curtail production with capacity utilization plummeting to multi-year lows.
Production Takes a Hit on Lower Capacity Utilization
Per the latest American Iron and Steel Institute ("AISI") weekly report, domestic raw steel production clocked 1,195,000 net tons for the week ending Jun 6, reflecting a 36% drop from production of 1,866,000 net tons for the same period a year ago. Reported weekly production also slipped 0.9% from production of 1,206,000 net tons logged for the week ending May 30.
Year to date (through Jun 6), raw steel production on an adjusted basis was 35,491,000 net tons, down 16.9% from 42,723,000 net tons recorded for the same period a year ago, the AISI noted. Capacity utilization — a major indicator of the health of the U.S. steel industry — is 68.6% year to date, down from 81.4% a year ago.
For the reported week, capacity utilization was 53.3%, well below the key 80% level (the minimum rate required for sustained profitability of the industry). Utilization rate fell from the previous week’s reading of 53.8% and plunged from 80.2% a year ago, per the AISI. Notably, capacity utilization clocked 51.1% in May 2020, the lowest level in many years.
U.S. steel capacity utilization started to decline in 2008 during the global financial crisis after remaining above 80% for a number of years. Utilization nosedived to almost 50% in 2009 before trending upward on recovery in the U.S. economy from the financial crisis.
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 rose roughly 1% on a weekly basis to 411,000 net tons in the reported week. Mills in the North East produced 113,000 net tons of raw steel, up around 13% from the previous week. Production in the Southern region dropped roughly 5% to 500,000 net tons in the reported week. The Midwest region produced 117,000 net tons of raw steel, down around 3% from a week ago. Output went down roughly 2% in the Western region to 54,000 net tons.
Muted Demand, Weak Steel Prices Taking Toll
Coronavirus has taken a big bite out of the U.S. steel industry. The virus outbreak has marred the slow recovery in the U.S. steel industry, which reeled under the effects of the U.S.-China trade war for the most part of 2019.
The pandemic has led to a slowdown in steel demand across major markets such as construction and automotive. The construction sector bore the brunt as certain projects were postponed or disrupted amid the outbreak. Disruptions in the supply chain and manpower shortages have also put a brake on automotive production. Moreover, a slump in crude oil prices has hurt demand for steel in the energy space.
The coronavirus-led demand destruction has forced U.S. steel mills to idle operations and scale down production. The prospects of a material recovery in end-market demand look slim amid the current difficult global environment.
The World Steel Association (“WSA”) predicts steel demand to drop 22.9% in the United States in 2020. The pandemic has led to a sharp manufacturing recession in the United States that is expected to hit the bottom in the second quarter, per the WSA. Lower oil prices have exerted pressure on investment in the energy sector while reduced income and confidence due to rising unemployment has impaired residential construction. Non-residential construction is also expected to decline in 2020.
Meanwhile, U.S. steel prices have come under pressure this year amid a weak demand environment. The benchmark hot-rolled coil (HRC) steel prices retreated to multi-year lows on concerns over the fast-growing pandemic in the United States and demand slowdown amid production shutdowns by automakers including Ford Motor Company (F - Free Report) , General Motors Company (GM - Free Report) and Fiat Chrysler Automobiles N.V. .
However, U.S. automakers began resuming production last month after a nearly two-month shutdown due to the virus crisis. The restart of production is likely to help revive demand for steel.
U.S. HRC prices fell below the $500 per short ton level in April amid demand slowdown due to automotive closures. However, steel mills’ price hike actions and higher scrap prices have helped HRC prices to gain some ground and break above that level of late. Given the current muted demand environment, a significant rebound in U.S. steel prices is not expected over the near term.
U.S. steel stocks also remain out of favor this year. While shares of American steel companies have gained some traction of late partly due to a demand recovery in China, they are still down year to date. Shares of prominent U.S. steel makers such as United States Steel Corp. (X - Free Report) , Nucor Corporation (NUE - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) are down roughly 12%, 22% and 15%, respectively, this year.
While United States Steel and Steel Dynamics currently carry a Zacks Rank #3 (Hold), Nucor has a Zacks Rank #4 (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 24.3% over this period compared with the S&P 500’s decline of 0.5% and broader sector’s fall of 5%.
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U.S. raw steel production has slumped nearly 17% this year as the coronavirus pandemic has squeezed demand for steel across major end-use markets. Ebbing demand has forced domestic steel mills to curtail production with capacity utilization plummeting to multi-year lows.
Production Takes a Hit on Lower Capacity Utilization
Per the latest American Iron and Steel Institute ("AISI") weekly report, domestic raw steel production clocked 1,195,000 net tons for the week ending Jun 6, reflecting a 36% drop from production of 1,866,000 net tons for the same period a year ago. Reported weekly production also slipped 0.9% from production of 1,206,000 net tons logged for the week ending May 30.
Year to date (through Jun 6), raw steel production on an adjusted basis was 35,491,000 net tons, down 16.9% from 42,723,000 net tons recorded for the same period a year ago, the AISI noted. Capacity utilization — a major indicator of the health of the U.S. steel industry — is 68.6% year to date, down from 81.4% a year ago.
For the reported week, capacity utilization was 53.3%, well below the key 80% level (the minimum rate required for sustained profitability of the industry). Utilization rate fell from the previous week’s reading of 53.8% and plunged from 80.2% a year ago, per the AISI. Notably, capacity utilization clocked 51.1% in May 2020, the lowest level in many years.
U.S. steel capacity utilization started to decline in 2008 during the global financial crisis after remaining above 80% for a number of years. Utilization nosedived to almost 50% in 2009 before trending upward on recovery in the U.S. economy from the financial crisis.
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 rose roughly 1% on a weekly basis to 411,000 net tons in the reported week. Mills in the North East produced 113,000 net tons of raw steel, up around 13% from the previous week. Production in the Southern region dropped roughly 5% to 500,000 net tons in the reported week. The Midwest region produced 117,000 net tons of raw steel, down around 3% from a week ago. Output went down roughly 2% in the Western region to 54,000 net tons.
Muted Demand, Weak Steel Prices Taking Toll
Coronavirus has taken a big bite out of the U.S. steel industry. The virus outbreak has marred the slow recovery in the U.S. steel industry, which reeled under the effects of the U.S.-China trade war for the most part of 2019.
The pandemic has led to a slowdown in steel demand across major markets such as construction and automotive. The construction sector bore the brunt as certain projects were postponed or disrupted amid the outbreak. Disruptions in the supply chain and manpower shortages have also put a brake on automotive production. Moreover, a slump in crude oil prices has hurt demand for steel in the energy space.
The coronavirus-led demand destruction has forced U.S. steel mills to idle operations and scale down production. The prospects of a material recovery in end-market demand look slim amid the current difficult global environment.
The World Steel Association (“WSA”) predicts steel demand to drop 22.9% in the United States in 2020. The pandemic has led to a sharp manufacturing recession in the United States that is expected to hit the bottom in the second quarter, per the WSA. Lower oil prices have exerted pressure on investment in the energy sector while reduced income and confidence due to rising unemployment has impaired residential construction. Non-residential construction is also expected to decline in 2020.
Meanwhile, U.S. steel prices have come under pressure this year amid a weak demand environment. The benchmark hot-rolled coil (HRC) steel prices retreated to multi-year lows on concerns over the fast-growing pandemic in the United States and demand slowdown amid production shutdowns by automakers including Ford Motor Company (F - Free Report) , General Motors Company (GM - Free Report) and Fiat Chrysler Automobiles N.V. .
However, U.S. automakers began resuming production last month after a nearly two-month shutdown due to the virus crisis. The restart of production is likely to help revive demand for steel.
U.S. HRC prices fell below the $500 per short ton level in April amid demand slowdown due to automotive closures. However, steel mills’ price hike actions and higher scrap prices have helped HRC prices to gain some ground and break above that level of late. Given the current muted demand environment, a significant rebound in U.S. steel prices is not expected over the near term.
U.S. steel stocks also remain out of favor this year. While shares of American steel companies have gained some traction of late partly due to a demand recovery in China, they are still down year to date. Shares of prominent U.S. steel makers such as United States Steel Corp. (X - Free Report) , Nucor Corporation (NUE - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) are down roughly 12%, 22% and 15%, respectively, this year.
While United States Steel and Steel Dynamics currently carry a Zacks Rank #3 (Hold), Nucor has a Zacks Rank #4 (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 24.3% over this period compared with the S&P 500’s decline of 0.5% and broader sector’s fall of 5%.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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