Global crude steel production spiked in May as steel mills in China – the world's biggest steel producer – ramped up production to record high. Higher output from India and the United States also supported the expansion.
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 rose 5.4% year over year for the reported month to 162.7 million tons (Mt).
China Mills Roar in May
Production from China, which accounts for around half of the global steel output, shot up 10% year over year to a new record high of 89.1 Mt in May, exceeding the previous peak level of 85 Mt registered in April. Steel mills in the country beefed up output even though higher feedstock costs due to a spike in iron ore prices squeezed their profit margins. The record output highlights China’s continued demand for steel consumption.
Fears of supply shortage due to mine disruptions in Brazil triggered a spurt in the prices of iron ore, the key steel-making raw material. Chinese steel mills are looking to raise their prices in the wake of higher input costs.
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. Despite U.S.-China trade tensions, China’s steel mills bumped up output last year to take advantage of strong profit margins. A glut of Chinese steel also put downward pressure on global steel prices. China’s steel overcapacity remains an overhang for the steel sector.
China’s steel production climbed 6.6% year over year to reach 928.3 Mt last year. The country’s share of global crude steel production rose to 51.3% in 2018 from 50.3% in 2017.
According to the WSA, Chinese steel output has surged 10.2% on a year-over-year comparison basis to roughly 404.9 Mt for the first five months of 2019.
How Other Key Producers Fared
Among other major Asian producers, India – the world's second largest producer of steel – saw a 5.1% rise in production to 9.2 Mt in May. The WSA, earlier this year, said that it expects continuing infrastructure projects to support steel demand growth in India.
Output in Japan dropped 4.6% to 8.7 Mt in May while production in South Korea rose 2.2% to 6.4 Mt. Consolidated output were up 7.6% to 117.3 Mt in Asia.
In North America, crude steel production picked up 5.4% to 7.7 Mt in the United States. The 25% tariff on steel imports, which the Trump administration levied last year, 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. Improved capacity is driving U.S. steel production.
Driven by the 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. However, higher production, partly driven by restarted mills, has contributed to the drop in U.S. steel prices.
Meanwhile, output in Canada went up 12.8% to around 1.2 Mt. Overall production in North America rose 4.5% to roughly 10.5 Mt.
In the Europe Union, production from Germany, the biggest producer in the region, fell 6.2% to 3.5 Mt. Output increased 1.1% in Italy to around 2.2 Mt. France saw a 7.6% decline to roughly 1.2 Mt while Spain witnessed a 7.1% drop to 1.3 Mt. Total output went down 2.8% in the European Union to around 14.5 Mt.
Output in the Middle East rose 1.6% to 3.2 Mt with Iran, the top producer in the region, seeing a 3.8% rise to 2.2 Mt. Africa logged an 8.5% gain to around 1.3 Mt in the reported month.
Among other notable producers, production from Turkey dropped 8% to 3.1 Mt. Output from Brazil, the largest producer in South America, was up 2.9% to 2.8 Mt.
What Lies Ahead?
Tangshan – the top steelmaking city in China – has extended production cuts across its mills till the end of July to improve air quality. This intense production curb at the steelmaking hub in China’s top steel province of Hebei may keep Chinese steel output growth under check in the coming months.
However, Chinese steel mills will likely continue to crank up output as domestic demand is expected to remain healthy moving forward. Steel demand in the country is expected to pick up as Beijing steps up efforts to ramp up infrastructure investment to prop up its slowing economy that has been hurt by the trade war with the United States. Higher investment in the construction sector is expected to support steel demand in the country. The WSA envisions heightened government stimulus levels to boost steel demand in China this year.
Steel Stocks to Watch For
A couple of stocks currently worth considering in the steel space are L.B. Foster Company (FSTR - Free Report) and Ryerson Holding Corporation (RYI - Free Report) . While L.B. Foster sports a Zacks Rank #1 (Strong Buy), Ryerson Holding is a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
L.B. Foster has an expected earnings growth of 65.8% for 2019. Earnings estimates for the current year have been revised 14.8% upward over the last 60 days.
Ryerson Holding has an expected earnings growth of 109.4% for 2019. Earnings estimates for the current year have been revised 51.4% upward over the last 60 days.
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