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Global Steel February Output Drops as Winter Curbs Hit China
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Global crude steel production fell for the seventh straight month in February, dragged down by a slump in output from top producer China on Beijing’s aggressive decarbonization drive. Production went up in India and the United States for the reported month.
According to the latest World Steel Association (“WSA”) report, crude steel production for 64 reporting nations dropped 5.7% year over year to 142.7 million tons (Mt) in February. Lower output across Asia & Oceania, the Europe Union (EU), CIS and South America more than offset higher production across North America, Africa and the Middle East in the reported month.
Softer Demand, Green Push Hurt China Production
Crude steel production from China fell for the eighth straight month in February on government’s measures to curb production to reduce pollution during the Winter Olympics. Steel mills in northern China accelerated output cuts during February to ensure blue skies for Winter Olympics. Weaker steel demand in the property sector and the Lunar New Year holiday also contributed to the decline.
Per the WSA, production in China, which accounts for roughly half of the global steel output, tumbled 10% year over year to 75 Mt in February. Output is also down from 81.7 Mt in January. Production also slipped 10% year over year to 158 Mt in the first two months of 2022. China’s monthly steel output has been declining 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 (“NBS”).
Beijing has been pushing steel mills in the country since early July 2021 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.
Steel demand in China has softened since the second half of 2021 due to a slowdown in the country’s economy. China's GDP growth slowed to 4% year over year in the fourth quarter of 2021 from a 4.9% growth in the third quarter, per NBS. A downturn in the country’s real estate sector and the impacts of the pandemic contributed to the slowdown.
A slowdown in construction and manufacturing activities has led to the contraction of demand for steel in China. Manufacturing is being hurt by semiconductor shortages, supply-chain disruptions and power outages. Beijing’s move to take the heat out of its property market partly through credit tightening measures bodes ill for construction steel demand. 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. Real estate accounts for roughly 40% of China's steel consumption. The WSA sees no growth in steel demand in China this year factoring in a depressed real estate sector.
How Other Major Producers Fared in February?
Among the other major Asian producers, India — the second-largest producer — saw a 7.6% rise in production to 10.1 Mt in February. Steel demand has picked up in India on a revival in economic activities post the deadly second wave and the subsequent Omicron outbreak. Domestic steel consumption has been driven by strengthening construction activities. Government’s infrastructure push and focus on accelerating the rural economy augur well for steel demand in India.
Production in Japan fell 2.3% to 7.3 Mt in the reported month. Output from the country declined for the second consecutive month. Crude steel output in South Korea slipped 6% to 5.2 Mt. Consolidated output went down 7.1% to 102.6 Mt in Asia and Oceania reflecting the decline in China.
In North America, crude steel production ticked up 1.4% to 6.4 Mt in the United States in February. Steel demand has rebounded in the Unites States with the resumption of operations, leading to an uptick in capacity utilization and domestic steel production. Overall production in North America went up 1.8% to 8.8 Mt.
In the EU, production from Germany, the largest producer in the region, rose 3.8% to 3.2 Mt. Total output was down 2.5% in the EU to 11.7 Mt. European steel makers are facing headwinds from soaring energy costs. The spike in electricity costs is weighing on steel producers in Europe, especially electric arc furnace producers, due to an increase in steelmaking costs.
Output in the Middle East rose 2.8% to 3.5 Mt in February. Iran, the top producer in the region, saw a 3.7% rise to 2.5 Mt. Production in Africa went up 4.1% to 1.3 Mt.
Among other notable producers, output from Turkey fell 3.3% to 3 Mt. Production from Brazil, the biggest producer in South America, dropped 6.9% to 2.7 Mt in February.
Industry Fundamentals Remain Favorable
The steel industry staged a strong comeback in 2021 after being rattled by the fallout from the coronavirus pandemic in 2020, courtesy of a strong revival in end-market demand and an upswing in steel prices to historic highs.
The pandemic hurt demand for steel across major end-use markets for much of the first half of 2020. However, the industry rebounded strongly last year on solid pent-up demand and a rally in steel prices. The resumption of operations across major steel-consuming sectors such as construction and automotive following the easing of lockdowns and restrictions globally has led to an uptick in steel demand.
Steel prices also escalated to all-time high last year 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 demand-supply imbalance. The benchmark hot-rolled coil (“HRC”) prices broke above the $1,900 per short ton level in August 2021 on supply tightness and robust demand. HRC prices hit a record high of $1,960 per short ton in late September, according to S&P Global Platts.
Strong pent-up demand for steel fueled a rally in steel prices in 2021. However, demand growth has slowed in the United States and globally. Demand stabilization contributed to shorter lead times, thereby putting pressure on prices.
HRC prices lost steam since October after peaking in September 2021. Steel production rose as more capacity was brought online, partly driven by the completion of scheduled maintenances by steel mills in the final quarter of 2021. Higher steel imports also exerted downward pressure on U.S. steel prices. The strong price arbitrage triggered more steel shipments to U.S. shores despite the hefty tariffs.
However, on a positive note, global steel prices are moving up since Russia's invasion of Ukraine on supply concerns. Steel prices have witnessed a significant rally in Europe as the war threatened supplies from the two important producing nations. Both Russia and Ukraine are key producers and suppliers of steel and steel-making raw materials, including coking coal and pig iron. U.S. steel prices are also going up of late amid the supply worries. HRC prices have rebounded in the recent weeks to above $1,400 per short ton after slumping to nearly $1,000 per short ton at the beginning of this month.
The ongoing conflict has also led to a spike in steel input costs due to the disruptions in the supply chains. Some of the U.S. steelmakers are taking price hike actions in the wake of soaring raw material costs, which are contributing to the uptick in HRC prices. More price increases are expected as steel producers scramble to tackle the rising input costs. Steel prices are, thus, expected to further tick higher in the coming weeks and months due to the strained supply situation.
Meanwhile, demand weakness in the automotive market is likely to continue over the near term amid the ongoing chip crunch. However, solid demand in other end markets including construction and supply disruptions are likely to lend support to HRC prices, driving profit margins of steel companies.
Steel Stocks Worth a Look
A few stocks currently worth considering in the steel space are Nucor Corporation (NUE - Free Report) , Olympic Steel, Inc. (ZEUS - Free Report) , Commercial Metals Company (CMC - Free Report) and TimkenSteel Corporation .
Nucor sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for NUE’s current-year earnings has been revised 30.7% upward over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Nucor has a trailing four-quarter earnings surprise of roughly 0.8%, on average. NUE shares have surged around 107% in a year.
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 49.7%. ZEUS shares have gained around 40% over the past year.
Commercial Metals carries a Zacks Rank #1 and has an expected earnings growth rate of 80.7% 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 rallied around 46% over the past year.
TimkenSteel carries a Zacks Rank #2 (Buy) and has a projected earnings growth rate of 10.6% for the current year. The Zacks Consensus Estimate for TMST’s current-year earnings has been revised 16.4% upward over the last 60 days.
TimkenSteel beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 41.3%. TMST shares have shot up around 137% in a year.
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Global Steel February Output Drops as Winter Curbs Hit China
Global crude steel production fell for the seventh straight month in February, dragged down by a slump in output from top producer China on Beijing’s aggressive decarbonization drive. Production went up in India and the United States for the reported month.
According to the latest World Steel Association (“WSA”) report, crude steel production for 64 reporting nations dropped 5.7% year over year to 142.7 million tons (Mt) in February. Lower output across Asia & Oceania, the Europe Union (EU), CIS and South America more than offset higher production across North America, Africa and the Middle East in the reported month.
Softer Demand, Green Push Hurt China Production
Crude steel production from China fell for the eighth straight month in February on government’s measures to curb production to reduce pollution during the Winter Olympics. Steel mills in northern China accelerated output cuts during February to ensure blue skies for Winter Olympics. Weaker steel demand in the property sector and the Lunar New Year holiday also contributed to the decline.
Per the WSA, production in China, which accounts for roughly half of the global steel output, tumbled 10% year over year to 75 Mt in February. Output is also down from 81.7 Mt in January. Production also slipped 10% year over year to 158 Mt in the first two months of 2022. China’s monthly steel output has been declining 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 (“NBS”).
Beijing has been pushing steel mills in the country since early July 2021 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.
Steel demand in China has softened since the second half of 2021 due to a slowdown in the country’s economy. China's GDP growth slowed to 4% year over year in the fourth quarter of 2021 from a 4.9% growth in the third quarter, per NBS. A downturn in the country’s real estate sector and the impacts of the pandemic contributed to the slowdown.
A slowdown in construction and manufacturing activities has led to the contraction of demand for steel in China. Manufacturing is being hurt by semiconductor shortages, supply-chain disruptions and power outages. Beijing’s move to take the heat out of its property market partly through credit tightening measures bodes ill for construction steel demand. 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. Real estate accounts for roughly 40% of China's steel consumption. The WSA sees no growth in steel demand in China this year factoring in a depressed real estate sector.
How Other Major Producers Fared in February?
Among the other major Asian producers, India — the second-largest producer — saw a 7.6% rise in production to 10.1 Mt in February. Steel demand has picked up in India on a revival in economic activities post the deadly second wave and the subsequent Omicron outbreak. Domestic steel consumption has been driven by strengthening construction activities. Government’s infrastructure push and focus on accelerating the rural economy augur well for steel demand in India.
Production in Japan fell 2.3% to 7.3 Mt in the reported month. Output from the country declined for the second consecutive month. Crude steel output in South Korea slipped 6% to 5.2 Mt. Consolidated output went down 7.1% to 102.6 Mt in Asia and Oceania reflecting the decline in China.
In North America, crude steel production ticked up 1.4% to 6.4 Mt in the United States in February. Steel demand has rebounded in the Unites States with the resumption of operations, leading to an uptick in capacity utilization and domestic steel production. Overall production in North America went up 1.8% to 8.8 Mt.
In the EU, production from Germany, the largest producer in the region, rose 3.8% to 3.2 Mt. Total output was down 2.5% in the EU to 11.7 Mt. European steel makers are facing headwinds from soaring energy costs. The spike in electricity costs is weighing on steel producers in Europe, especially electric arc furnace producers, due to an increase in steelmaking costs.
Output in the Middle East rose 2.8% to 3.5 Mt in February. Iran, the top producer in the region, saw a 3.7% rise to 2.5 Mt. Production in Africa went up 4.1% to 1.3 Mt.
Among other notable producers, output from Turkey fell 3.3% to 3 Mt. Production from Brazil, the biggest producer in South America, dropped 6.9% to 2.7 Mt in February.
Industry Fundamentals Remain Favorable
The steel industry staged a strong comeback in 2021 after being rattled by the fallout from the coronavirus pandemic in 2020, courtesy of a strong revival in end-market demand and an upswing in steel prices to historic highs.
The pandemic hurt demand for steel across major end-use markets for much of the first half of 2020. However, the industry rebounded strongly last year on solid pent-up demand and a rally in steel prices. The resumption of operations across major steel-consuming sectors such as construction and automotive following the easing of lockdowns and restrictions globally has led to an uptick in steel demand.
Steel prices also escalated to all-time high last year 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 demand-supply imbalance. The benchmark hot-rolled coil (“HRC”) prices broke above the $1,900 per short ton level in August 2021 on supply tightness and robust demand. HRC prices hit a record high of $1,960 per short ton in late September, according to S&P Global Platts.
Strong pent-up demand for steel fueled a rally in steel prices in 2021. However, demand growth has slowed in the United States and globally. Demand stabilization contributed to shorter lead times, thereby putting pressure on prices.
HRC prices lost steam since October after peaking in September 2021. Steel production rose as more capacity was brought online, partly driven by the completion of scheduled maintenances by steel mills in the final quarter of 2021. Higher steel imports also exerted downward pressure on U.S. steel prices. The strong price arbitrage triggered more steel shipments to U.S. shores despite the hefty tariffs.
However, on a positive note, global steel prices are moving up since Russia's invasion of Ukraine on supply concerns. Steel prices have witnessed a significant rally in Europe as the war threatened supplies from the two important producing nations. Both Russia and Ukraine are key producers and suppliers of steel and steel-making raw materials, including coking coal and pig iron. U.S. steel prices are also going up of late amid the supply worries. HRC prices have rebounded in the recent weeks to above $1,400 per short ton after slumping to nearly $1,000 per short ton at the beginning of this month.
The ongoing conflict has also led to a spike in steel input costs due to the disruptions in the supply chains. Some of the U.S. steelmakers are taking price hike actions in the wake of soaring raw material costs, which are contributing to the uptick in HRC prices. More price increases are expected as steel producers scramble to tackle the rising input costs. Steel prices are, thus, expected to further tick higher in the coming weeks and months due to the strained supply situation.
Meanwhile, demand weakness in the automotive market is likely to continue over the near term amid the ongoing chip crunch. However, solid demand in other end markets including construction and supply disruptions are likely to lend support to HRC prices, driving profit margins of steel companies.
Steel Stocks Worth a Look
A few stocks currently worth considering in the steel space are Nucor Corporation (NUE - Free Report) , Olympic Steel, Inc. (ZEUS - Free Report) , Commercial Metals Company (CMC - Free Report) and TimkenSteel Corporation .
Nucor sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for NUE’s current-year earnings has been revised 30.7% upward over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Nucor has a trailing four-quarter earnings surprise of roughly 0.8%, on average. NUE shares have surged around 107% in a year.
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 49.7%. ZEUS shares have gained around 40% over the past year.
Commercial Metals carries a Zacks Rank #1 and has an expected earnings growth rate of 80.7% 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 rallied around 46% over the past year.
TimkenSteel carries a Zacks Rank #2 (Buy) and has a projected earnings growth rate of 10.6% for the current year. The Zacks Consensus Estimate for TMST’s current-year earnings has been revised 16.4% upward over the last 60 days.
TimkenSteel beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 41.3%. TMST shares have shot up around 137% in a year.