Back to top

Zacks Industry Outlook Highlights: United States Steel, AK Steel Holding, ArcelorMittal, Nucor and Steel Dynamics

Read MoreHide Full Article

For Immediate Release

Chicago, IL – August 30, 2017 – Today, Zacks Equity Research discusses the Industry: Steel, Part 1, including United States Steel Corp.(NYSE: (X - Free Report) – Free Report), AK Steel Holding Corp. (NYSE: (AKS - Free Report) – Free Report), ArcelorMittal (NYSE: (MT - Free Report) – Free Report), Nucor Corp.(NYSE: (NUE - Free Report) – Free Report) and Steel Dynamics Inc. (NASDAQ: (STLD - Free Report) – Free Report)

Industry: Steel, Part 1

Link: https://www.zacks.com/commentary/126562/steel-industry-stock-outlook---aug-2017

The versatility of steel as a product along with its fundamental requirement in our lives, makes it a crucial element for economic growth. Steel stocks were propelled following President Trump’s election win in November 2016. The change in momentum can basically be attributed to expectations of significant infrastructure spending under the Trump administration.

Trump’s aggressive trade policies are also anticipated to provide more protection to the U.S. steel industry. Further, the industry continues to benefit from the sustained healthy demand in the automobile and construction sectors.

Per the World Steel Association’s data available through July 2017, global steel production improved 4.6% to 977 metric tons (Mt). Steel production in Asia was at 675 Mt in the quarter, a 5.1% year-over-year increase. North America’s crude steel production registered a 7.1% rise to 67.6 Mt in the quarter while the EU produced 99.6 Mt of crude steel, rising 3.9% year over year. Steel production in the C.I.S. was at 57.8 Mt, a decrease of 3.3% year over year.

China, the world’s largest steel maker, delivered a 5.1% rise in steel production during the first seven months of the year. An economic slowdown in China had dealt a massive blow to the global steel industry. Overcapacity and lower steel prices have dented the margins of Chinese steel producers. Efforts have been undertaken to reduce overcapacity and upgrade production in China's steel industry to negate these factors.

To mitigate the impact of rebalancing, the Chinese government issued a number of mini-stimulus measures. This led to a short-term boom in infrastructure investment and the housing market, working in favor of the steel industry. Consequently, China’s steel demand grew 1.3% in 2016 and the industry continued to witness strong steel demand so far in 2017.

China’s economy expanded at an annual rate of 6.9% in the first and second quarters, a tad better than the 6.7% growth witnessed last year. China’s actions to reduce excess steel supply are also expected to lend support to steel prices in 2017. The world’s largest steel producer has pledged to cut steel production capacity by around 50 million metric tons in 2017 to tackle pollution and curb excess supply.

The steel industry remains challenged by waning investments, turbulence in the financial market and geopolitical conflicts in many developing regions. Given the industry’s 10% exposure to the energy sector, lower oil prices have weighed down prices of steel as well. Steel demand from energy companies continues to be weak due to declining capital expenditure budgets. United States Steel Corp. (NYSE: XFree Report), which is the biggest supplier to energy companies in North America, along with AK Steel Holding Corp. (NYSE: AKSFree Report) and ArcelorMittal (NYSE: MTFree Report), were affected by the slowdown.

U.S. steel mills remain impacted by depressed capacity utilization and a surge of unfairly traded imports. The domestic market continues to be inundated with cheap imports from overseas producers, especially China. American steel makers including Nucor Corp. (NYSE: NUEFree Report), U.S. Steel, AK Steel, Steel Dynamics Inc. (NASDAQ: STLDFree Report) and ArcelorMittal USA, a part of ArcelorMittal, have borne the brunt of high levels of cheap imports. This has resulted in declining orders, idling of mills and layoffs across the board.

Consequently, U.S. steel makers continue to actively press regulators to stop unfair trade practices and enforce new trade laws to rescue the crisis-hit American steel industry.

Industry Positioning – Mixed Bag

The Zacks Industry Rank relies on the same estimate revisions methodology that drives the Zacks Rank for stocks. The way to look at the complete list of industries is that, we put our industries (all 265 of them) into two groups: the top half (i.e., industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).

In the last 10 years, using a one-week rebalance, the top half beat the bottom half by a factor of more than 2 to 1. Click here to know more: About Zacks Industry Rank

Within the Zacks Industry classification, the Steel producers, Steel-pipe and tube and Steel specialty industries are grouped under the Basic Materials sector (one of 16 Zacks sectors). The steel-pipe and tube and steel Producers and industry, with a respective Zacks Industry Rank #50 and #51, remain in the top half. However, the steel specialty industry occupies a space in the bottom half of the Zacks classified industries with a Rank of #252.

Sector Level Earnings Trend - Positive

Per the Zacks Industry classification, the steel industries are grouped under the broader Basic Materials sector. Earnings from the sector participants on the S&P 500 Index increased 7.5% in the second quarter while sales improved 3.9%.

Per our projections, earnings for the Basic Materials sector is expected to dip 0.1% in the third quarter of 2017 and recover in the fourth quarter with a 13.4% rise in earnings. In 2018, earnings growth will remain strong with projections of 11.7% and 10.7% for the first quarter and second quarter, respectively.

Mixed Performance

In the past year, the Steel Producers industry has outperformed the broader market with a rise of 29.6% compared with S&P 500’s corresponding gain of 11.6%. The steel specialty and steel-pipe and tube industries however lagged behind the S&P 500 with a 5.1% rise and 1.8% dip, respectively.

What Lies Ahead?

After recording growth of 1% in global steel demand in 2016, the World Steel Association projects global steel demand to rise 1.3% in 2017. This will be followed by a 0.9% rise in 2018. In both the years, a cyclical upturn in steel demand is anticipated backed by an ongoing recovery in the developed economies along with an accelerating growth momentum in the emerging and developing economies. United States is expected to continue to lead growth in the developed world thanks to strong fundamentals, newly announced measures related to fiscal stimuli and rising infrastructure spending.

Meanwhile, the European economy is on the road to recovery. Steel demand in the EU is expected to go up in 2017 and 2018. This is a positive for companies like ArcelorMittal, which generates almost half of revenues from this region. U.S. Steel also has a significant presence in Europe. India is anticipated to act as the next growth engine, given its progressing construction and manufacturing sectors along with rapid urbanization and structural reforms.

Meanwhile, the automotive and construction industries will continue to provide the backbone to the steel industry. A projection of earnings growth, the favorable Zacks Rank also instills investor confidence in the space.

Strong Stocks that Should Be in the News

Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year.See these high-potential stocks free >>.

Get the full Report on X - FREE

Get the full Report on AKS - FREE

Get the full Report on MT - FREE

Get the full Report on NUE - FREE

Get the full Report on STLD - FREE

Follow us on Twitter:  https://twitter.com/zacksresearch

Join us on Facebook:  https://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

https://www.zacks.com/

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.



More from Zacks Press Releases

You May Like