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Global Steel August Production Rises As China Hits Fresh High

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Global crude steel production expanded in August as a spike in production from China to a new record high neutralized declines across other major producers. Coronavirus-led disruptions continued hurt output across several steel-producing regions last month.

Per the latest World Steel Association (“WSA”) report, crude steel production for 64 reporting nations rose 0.6% year over year to 156.2 million tons (Mt) in August. The WSA noted that due to the difficulties presented by the pandemic, many of the figures for August are estimates that may be revised with next month’s production update.

China Clocks Record Production

Crude steel production from China — the world's biggest steel producer — surged in August to an all-time high on the back of firm domestic demand, buoyed by government investment in property and infrastructure.

Per the WSA, production in China, which now accounts for more than 60% of the global steel output, shot up 8.4% year over year to 94.8 Mt in August, eclipsing the previous high of 93.4 Mt hit in July. For the first eight months of 2020, output went up 3.7% year over year to roughly 688.9 Mt.

Considering the current pace, china’s steel production is likely to surpass 1 billion tons for the first time this year. Notably, China’s production jumped 8.3% year over year to 996.3 Mt in 2019.

China is gradually pulling out of the pandemic-induced slowdown. China’s steel production tumbled in March 2020 as steel mills in the country cut production in the wake of a slowdown in domestic demand and a pile-up in finished steel inventories. Production started to recover in April on the back of the restart of idled capacity and higher utilizations.

However, China’s steel overcapacity remains an overhang for steel industry. Steel mills in China are ramping up production driven by new capacity and a rebound in domestic demand, aided by Beijing’s infrastructure push. Rising steel production in China has led to high levels of finished steel inventories in the country of late. The steel glut has also ignited concerns of China flooding global markets with cheap steel exports.

How Other Major Producers Fared in August?

Among the other major Asian producers, India saw a 4.4% decline in production to 8.5 Mt in August, the sixth consecutive month of decline. Steel demand in India have been hurt by disruptions due to the coronavirus crisis. However, the pace of decline in production eased from a 24.6% fall in July. Steel demand in the country is likely to pick up moving ahead with the easing of lockdown restrictions and a rebound in economic activities.

Production in Japan also tumbled 20.6% to 6.4 Mt in the reported month. Steel makers in the country have been hit by shrinking demand from major markets including automotive amid the virus crisis. Crude steel output in South Korea also slipped 1.8% to 5.8 Mt. South Korean steel mills are scaling down production in response to a sharp decline in demand from key steel-consuming sectors including automotive and construction. Consolidated output rose 4.8% to 120.2 Mt in Asia.

In North America, crude steel production slumped 24.4% to 5.6 Mt in the United States in August. The low demand environment due to the pandemic has forced U.S. steel mills to curtail production.

Meanwhile, output in Canada dropped 25.7% to around 0.8 Mt while in Mexico it fell 17.3% to roughly 1.3 Mt in August. Overall production in North America dropped 23.7% to roughly 7.7 Mt.  

In the Europe Union (EU), production from Germany, the biggest producer in the region, went down 13.4% to 2.8 Mt. Output dipped 9.7% in Italy to roughly 0.9 Mt. France also saw a 31.2% slump to 0.7 Mt while output dropped 32.5% in Spain to around 0.7 Mt. Total output was down 16.6% in the EU to around 9.3 Mt.

Steel producers in Europe are reeling under the effects of pandemic-induced slowdown in demand in automotive and construction markets. Weak demand has forced steel producers to cut their capacity to adapt to the challenging situation. The resurgence of coronavirus infections is likely to put a lid on steel demand in Europe.

The WSA sees demand in the EU to contract 15.8% this year. The manufacturing sector in the EU was expected to rebound in 2020 following a recession in 2019. However, it has been pushed into a deeper recession amid lockdowns that led to a significant decline in orders. The trade body expects the automotive sector in the region to be the worst hit.

Moreover, output in the Middle East slipped 9.5% to 3 Mt in August. Iran, the top producer in the region, saw a 14.6% rise to roughly 2.4 Mt. Africa recorded a 11.2% decline to around 0.8 Mt in August.

Among other notable producers, output from Turkey climbed 22.9% to 3.2 Mt. Production from Brazil, the largest producer in South America, rose 6.5% to roughly 2.7 Mt.

What Lies Ahead?

Steel production in China is likely to continue to rise moving ahead on higher domestic demand. A recovery in construction and manufacturing activities is driving demand for steel in China, the world’s top consumer of the commodity.

Steel consumption is expected to be driven, in the coming months, by government spending in infrastructure projects. China government is looking to revitalize the economy with big infrastructure spending. However, the pace of growth of China’s steel production could slow as government’s credit tightening measures are likely to lead to a slowdown in demand in the property sector.

Steel Stocks Worth Considering

A few stocks currently worth a look in the steel space are Commercial Metals Company (CMC - Free Report) , Companhia Siderurgica Nacional (SID - Free Report) , POSCO (PKX - Free Report) , L.B. Foster Company (FSTR - Free Report) and Olympic Steel, Inc. (ZEUS - Free Report) . While Commercial Metals sports a Zacks Rank #1 (Strong Buy), Companhia Siderurgica, POSCO, L.B. Foster and Olympic Steel each carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Commercial Metals has expected earnings growth of 17.3% for the current fiscal year. The Zacks Consensus Estimate for the current fiscal has been revised 2.9% upward over the last 60 days. The company also surpassed the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 38.9%. The stock is also up around 38% over the past six months.

Companhia Siderurgica beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters. The consensus estimate for the current year has been revised 314% upward over the last 60 days. The stock has also shot up roughly 116% over the past six months.

POSCO has an estimated long-term earnings growth rate of 5%. The Zacks Consensus Estimate for the current year has been revised 6.4% upward over the last 60 days. The stock is also up roughly 30% over the past six months.

L.B. Foster delivered an earnings surprise of 4,200% in the last reported quarter. The consensus estimate for the current year also has been revised 161.5% upward over the last 60 days. The stock is also up roughly 5% over the past six months.

Olympic Steel delivered an earnings surprise of 34.5% in the last reported quarter. The Zacks Consensus Estimate for the current year has been revised 20% upward over the last 60 days. The company’ shares have gained around 17% over the past six months.

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