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Global Steel Production Up in February, China Remains a Risk
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Global crude steel production expanded in February on the back of a surge in output in China, the world's biggest steel maker. Higher output from India – the second-largest steel producer – and the United States also contributed to the production growth.
According to the latest report from the World Steel Association ("WSA") – the international trade body for the iron and steel industry – crude steel production for 64 reporting nations spiked 4.1% year over year for the reported month to 137.3 million tons (Mt).
Chinese Output Jumps Y/Y
Production from China, which accounts for around half of the global steel output, shot up 9.2% year over year to 71 Mt in February, per the WSA. Chinese steel mills beefed up production during the month, driven by higher profit margins.
The steel industry continues to reel under the effects of sustained oversupply of steel in the market, exacerbated by a surge in production in China. Per the WSA, China’s steel production climbed 6.6% year over year in 2018 to reach 928.3 Mt. The country’s share of global crude steel production rose to 51.3% in 2018 from 50.3% in 2017.
Notwithstanding the trade tensions, China’s steel mills bumped up output last year to take advantage of strong profit margins. A glut of cheap Chinese steel driven by the ramp up in output amid weak domestic demand has put downward pressure on global steel prices of late.
The four-month production restriction to curb pollution during the winter months is expected to be lifted by Beijing by the end of this week. As such, a number of Chinese mills are likely to resume normal production from April following the winter output cuts that was aimed at improving air quality. This may lead to a rise in production levels.
How Other Key Producers Fared in February
Among other major Asian producers, India saw a 2.3% rise in production to 8.7 Mt for the reported month. Output in Japan dropped 6.6% to 7.7 Mt in February while production in South Korea rose 1.1% to 5.5 Mt. Consolidated output were up 6.8% to 96.5 Mt in Asia.
In North America, crude steel production went up 4.6% to 6.9 Mt in the United States. The 25% tariff on steel imports, which the Trump administration levied in March 2018, are boosting production capacity of U.S. steel producers amid lower imports. The tariffs have helped U.S. steel industry capacity break above the important 80% level – the minimum rate required for sustained profitability of the industry.
Driven by President Trump’s trade actions, a number of American steel producers including United States Steel Corp. (X - Free Report) , Nucor Corp. (NUE - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) are investing to ramp up production capabilities and upgrade facilities.
Meanwhile, output in Canada fell 6.7% to around 1 Mt in February. Overall production in North America edged up 0.2% to roughly 9.4 Mt.
In the Europe Union, production from Germany, the biggest producer in the region, fell 9.4% to 3.1 Mt. Output also went down 2.7% in Italy to around 2 Mt while. France saw a 0.3% decline to roughly 1.2 Mt while Spain witnessed a 2.5% increase to 1.1 Mt. Total output went down 5% in the European Union to around 13 Mt.
Output in the Middle East jumped 22.2% to 2.9 Mt with Iran, the top producer in the region, seeing a 21.7% surge to 2 Mt. Africa logged a 12.6% gain to around 1.3 Mt in the reported month.
Among other notable producers, production from Turkey dropped 12.5% to 2.6 Mt. Output from Brazil, the largest producer in South America, was down 1.7% to 2.7 Mt.
China Slowdown a Worry
A slowdown in steel demand in China amid a slowing domestic economy spells problem for the steel industry. The trade war has taken a heavy toll on the Chinese economy as reflected by China’s recent tepid economic indicators.
Signs of weakness across the country’s major steel end-use markets — construction and automotive — as reflected by a slowdown in real-estate investment growth and weak car sales have clouded steel demand outlook.
China’s automobile sales dropped year over year in February for the eighth straight month amid a slowing economy and trade friction with the United States. Chinese automobile sales slumped 13.8% to roughly 1.48 million units in February, per the China Association of Automobile Manufacturers (“CAAM”). Chinese auto sales fell 2.8% year over year in 2018. The CAAM expects China to sell around 28 million cars in 2019, flat with 2018.
China’s economy grew 6.6% in 2018, the weakest pace in almost three decades. China has lowered its GDP growth target for 2019 to 6-6.5% amid challenges from trade war with the United States, rising debt level and a slowing world economy. The International Monetary Fund (“IMF”) expects China's economy to grow 6.2% this year and in 2020.
The WSA envisions steel demand in China to decelerate in 2019 due to continued economic rebalancing efforts and toughening environmental regulations. Trade tensions and a slowing global economy pose as downside risks for China. The WSA expects Chinese steel demand to remain flat year over year in 2019.
Steel Stocks to Watch For
A couple of stocks currently worth considering in the steel space are Universal Stainless & Alloy Products, Inc. (USAP - Free Report) and Grupo Simec, S.A.B. de C.V. (SIM - Free Report) . While Universal Stainless carries a Zacks Rank #1 (Strong Buy), Grupo Simec is a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Universal Stainless has an expected earnings growth of 15.6% for 2019. Earnings estimates for the current year have been revised 8.5% upward over the last 60 days.
Grupo Simec has delivered average positive earnings surprise of 14.3% over the trailing four quarters. Earnings estimates for the current year have been revised 1.2% upward over the last 60 days.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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Global Steel Production Up in February, China Remains a Risk
Global crude steel production expanded in February on the back of a surge in output in China, the world's biggest steel maker. Higher output from India – the second-largest steel producer – and the United States also contributed to the production growth.
According to the latest report from the World Steel Association ("WSA") – the international trade body for the iron and steel industry – crude steel production for 64 reporting nations spiked 4.1% year over year for the reported month to 137.3 million tons (Mt).
Chinese Output Jumps Y/Y
Production from China, which accounts for around half of the global steel output, shot up 9.2% year over year to 71 Mt in February, per the WSA. Chinese steel mills beefed up production during the month, driven by higher profit margins.
The steel industry continues to reel under the effects of sustained oversupply of steel in the market, exacerbated by a surge in production in China. Per the WSA, China’s steel production climbed 6.6% year over year in 2018 to reach 928.3 Mt. The country’s share of global crude steel production rose to 51.3% in 2018 from 50.3% in 2017.
Notwithstanding the trade tensions, China’s steel mills bumped up output last year to take advantage of strong profit margins. A glut of cheap Chinese steel driven by the ramp up in output amid weak domestic demand has put downward pressure on global steel prices of late.
The four-month production restriction to curb pollution during the winter months is expected to be lifted by Beijing by the end of this week. As such, a number of Chinese mills are likely to resume normal production from April following the winter output cuts that was aimed at improving air quality. This may lead to a rise in production levels.
How Other Key Producers Fared in February
Among other major Asian producers, India saw a 2.3% rise in production to 8.7 Mt for the reported month. Output in Japan dropped 6.6% to 7.7 Mt in February while production in South Korea rose 1.1% to 5.5 Mt. Consolidated output were up 6.8% to 96.5 Mt in Asia.
In North America, crude steel production went up 4.6% to 6.9 Mt in the United States. The 25% tariff on steel imports, which the Trump administration levied in March 2018, are boosting production capacity of U.S. steel producers amid lower imports. The tariffs have helped U.S. steel industry capacity break above the important 80% level – the minimum rate required for sustained profitability of the industry.
Driven by President Trump’s trade actions, a number of American steel producers including United States Steel Corp. (X - Free Report) , Nucor Corp. (NUE - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) are investing to ramp up production capabilities and upgrade facilities.
Meanwhile, output in Canada fell 6.7% to around 1 Mt in February. Overall production in North America edged up 0.2% to roughly 9.4 Mt.
In the Europe Union, production from Germany, the biggest producer in the region, fell 9.4% to 3.1 Mt. Output also went down 2.7% in Italy to around 2 Mt while. France saw a 0.3% decline to roughly 1.2 Mt while Spain witnessed a 2.5% increase to 1.1 Mt. Total output went down 5% in the European Union to around 13 Mt.
Output in the Middle East jumped 22.2% to 2.9 Mt with Iran, the top producer in the region, seeing a 21.7% surge to 2 Mt. Africa logged a 12.6% gain to around 1.3 Mt in the reported month.
Among other notable producers, production from Turkey dropped 12.5% to 2.6 Mt. Output from Brazil, the largest producer in South America, was down 1.7% to 2.7 Mt.
China Slowdown a Worry
A slowdown in steel demand in China amid a slowing domestic economy spells problem for the steel industry. The trade war has taken a heavy toll on the Chinese economy as reflected by China’s recent tepid economic indicators.
Signs of weakness across the country’s major steel end-use markets — construction and automotive — as reflected by a slowdown in real-estate investment growth and weak car sales have clouded steel demand outlook.
China’s automobile sales dropped year over year in February for the eighth straight month amid a slowing economy and trade friction with the United States. Chinese automobile sales slumped 13.8% to roughly 1.48 million units in February, per the China Association of Automobile Manufacturers (“CAAM”). Chinese auto sales fell 2.8% year over year in 2018. The CAAM expects China to sell around 28 million cars in 2019, flat with 2018.
China’s economy grew 6.6% in 2018, the weakest pace in almost three decades. China has lowered its GDP growth target for 2019 to 6-6.5% amid challenges from trade war with the United States, rising debt level and a slowing world economy. The International Monetary Fund (“IMF”) expects China's economy to grow 6.2% this year and in 2020.
The WSA envisions steel demand in China to decelerate in 2019 due to continued economic rebalancing efforts and toughening environmental regulations. Trade tensions and a slowing global economy pose as downside risks for China. The WSA expects Chinese steel demand to remain flat year over year in 2019.
Steel Stocks to Watch For
A couple of stocks currently worth considering in the steel space are Universal Stainless & Alloy Products, Inc. (USAP - Free Report) and Grupo Simec, S.A.B. de C.V. (SIM - Free Report) . While Universal Stainless carries a Zacks Rank #1 (Strong Buy), Grupo Simec is a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Universal Stainless has an expected earnings growth of 15.6% for 2019. Earnings estimates for the current year have been revised 8.5% upward over the last 60 days.
Grupo Simec has delivered average positive earnings surprise of 14.3% over the trailing four quarters. Earnings estimates for the current year have been revised 1.2% upward over the last 60 days.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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