Global crude steel production dropped in August on a slump in output from top producer China to a 17-month low on government’s actions to control production to reduce carbon emissions. Production rose across other major steel-producing countries for the reported month with the United States and Japan racking up the biggest gains.
According to the latest World Steel Association (“WSA”) report, crude steel production for 64 reporting nations fell 1.4% year over year to 156.8 million tons (Mt) in August. A decline in Asia and Oceania offset higher production across other regions in the reported month. China Output Tumbles As Beijing Ramps Up Green Push
Crude steel production from China fell for the third straight month in August as Beijing stepped up measures to cut production to clean up the environment in a bid to reach its carbon neutrality goal by 2060. Per the WSA, production in China, which accounts for more than half of the global steel output, slumped 13.2% year over year to 83.2 Mt in August. Output is also down from 86.8 Mt in July. Despite the decline, production is still up 5.3% year over year to 733 Mt in the first eight months of 2021.
China is looking to keep 2021 steel output within last year’s record levels. The production curbs are aimed at reducing air pollution and controlling costs of raw materials including iron ore. China has been pushing steel mills in the country since early July to implement output and capacity curbs to comply with the norms to cut carbon emissions. The steel sector is among the biggest sources of carbon emissions in China, accounting for roughly 15% of national carbon emissions. China has set a national goal to achieve peak carbon emissions for the steel sector by 2025. In the Hebei province, Tangshan — the top steelmaking city in China — is reportedly planning to cut its crude steel production by 12.37 Mt in 2021 and looks to be on track to meet the target. China's second-largest steel-producing province, Jiangsu, has also ramped up output cuts this month. Other major steelmaking provinces such as Shandong and Liaoning have also started to scale down production. China’s steel output clocked 1.06 billion tons in 2020 following a production ramp-up on a strong rebound in domestic demand, driven by government investment in property and infrastructure. Output from the country hit a record high of 99.5 Mt in May 2021 on the back of firm domestic demand and healthy profit margins at mills, before retreating to 93.9 Mt in June. Production curbs are expected to keep China’s steel output levels under check in the coming months. Output is also likely to be capped by an expected softening of steel demand in the country, partly resulting from a slowdown in the construction sector. Beijing’s actions to take the heat out of its property market this year partly through credit tightening measures bodes ill for the country's steel industry. The debt crisis at one of China top property developers, Evergrande, also increases the risk of a financial contagion in the country’s property sector. This may lead to a slump in construction activities and a slowdown in the launch of new properties in China, thereby hurting steel demand and triggering more production cuts. The potential collapse of Evergrande, which is saddled with more than $300 billion in debt, may pop China’s property bubble and could have a ripple effect on the rest of the world. Real estate accounts for roughly 40% of China's steel consumption. A boom in the property sector played a major role in driving China's steel production last year. How Other Major Producers Fared in August?
Among the other major Asian producers, India — the second-largest producer — saw an 8.2% rise in production to 9.9 Mt in August. Steel demand is picking up in India on a revival in economic activities with the lifting of lockdowns and restrictions imposed by state governments to blunt the rapid spread of the virus amid the deadly second wave. Government’s infrastructure push and focus on accelerating the rural economy augur well for steel demand in the country.
Production in Japan climbed 22.9% to 7.9 Mt in the reported month. Output rose for the sixth straight month as steel makers in the country are seeing a rebound in industrial demand from the pandemic-led lows. Crude steel output in South Korea also rose 6.2% to 6.1 Mt. Consolidated output went down 7.3% to 112.7 Mt in Asia and Oceania reflecting the decline in China. In North America, crude steel production jumped 26.8% to 7.5 Mt in the United States in August. Shutdowns across major steel-consuming sectors due to the pandemic put a crimp on steel demand, forcing U.S. steel mills to curtail production and idle operations with capacity utilization slumping to a multi-year lows during the first half of 2020. However, demand has rebounded with the resumption of operations, leading to an uptick in capacity utilization and domestic steel production. U.S. capacity utilization rate broke above the important 80% level in May 2021 for the first time since the start of the pandemic in March 2020, and remains close to the 85% level amid strong domestic demand. Overall production in North America went up 24.4% to roughly 10.2 Mt. In the Europe Union (EU), production from Germany, the biggest producer in the region, rose 6.7% to 3 Mt. Total output was up 27.1% in the EU to around 11.6 Mt. Steel prices in the region have come under pressure since August following a rally over the past several months to record highs as the ongoing semiconductor shortage is hurting demand from car manufacturers. Reduced consumption in the automotive sector due to the chip crunch is expected to weigh on European steel prices over the near term. Production in the Middle East rose 10.9% to 3.6 Mt in August. Iran, the top producer in the region, saw an 8.7% rise to 2.5 Mt. Africa logged a 38.2% surge to 1.3 Mt. Among other notable producers, output from Turkey increased 7.1% to 3.5 Mt. Production from Brazil, the largest producer in South America, went up 14.1% to 3.1 Mt in August. Steel Industry Rides on Price Rally, Demand Strength
The steel industry is currently enjoying a bull run after bearing the brunt of the pandemic last year, thanks to a strong revival in domestic demand and skyrocketing steel prices.
Coronavirus hurt demand for steel across major end-use markets for much of the first half of last year. However, industry has staged an impressive comeback on strong pent-up demand and zooming steel prices. Steel demand is on an upswing with the resumption of operations across major sectors such as automotive, construction and machinery following easing of lockdowns and restrictions across the word. Demand remains robust across construction and manufacturing sectors. Steel prices also continue to race ahead, buoyed by strong underlying supply and demand fundamentals. U.S. steel prices are on an upswing on strong end-market demand, tight supply and low steel supply-chain inventories. The benchmark hot-rolled coil (“HRC”) prices plunged to a pandemic-led multi-year low of roughly $440 per short ton in August 2020. However, HRC prices started to recover from September 2020 and are shooting higher since then on U.S. steel mills’ price hike actions, tight supply conditions and solid demand. Prices are currently hovering near the $2,000 per short ton level. HRC prices have shot up more than four-fold from the August 2020 low. The imbalance between supply and demand has largely contributed to the strong run-up in steel prices. Higher prices are likely to act as a catalyst and drive margins of steel companies through the remainder of 2021. Steel Stocks Worth Considering
A few stocks currently worth a look in the steel space are
ArcelorMittal ( MT Quick Quote MT - Free Report) , Nucor Corporation ( NUE Quick Quote NUE - Free Report) , United States Steel Corporation ( X Quick Quote X - Free Report) , Steel Dynamics, Inc. ( STLD Quick Quote STLD - Free Report) and Ternium S.A. ( TX Quick Quote TX - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see . the complete list of today’s Zacks #1 Rank stocks here ArcelorMittal has expected earnings growth rate of 1,776.6% for the current year. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 21.1% upward over the last 60 days. Nucor has expected earnings growth rate of 534.4% for the current year. The consensus estimate for the current year has been revised 27.6% upward over the last 60 days. U.S. Steel has expected earnings growth rate of 381.2% for the current year. The Zacks Consensus Estimate for the current year has been revised 18.9% upward over the last 60 days. Steel Dynamics has expected earnings growth rate of 431% for the current year. The consensus estimate for the current year has been revised 18.3% upward over the last 60 days. Ternium has expected earnings growth rate of 460.6% for the current year. The consensus estimate for the current year has been revised 25.5% upward over the last 60 days.