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Global Steel Output Growth Eases as China Production Cools
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Global crude steel production rose in July on higher output in China, the world's biggest steel maker. 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 1.7% year over year for the reported month to 156.7 million tons (Mt).
However, the growth in output for the reported month slowed from a 4.6% year-over-year rise witnessed in June as stringent anti-smog measures led to a slowdown in production growth in China.
China Output Growth Slows on Production Curbs
Production from China, which accounts for around half of the global steel output, went up 5% year over year to 85.2 Mt in July. However, this is down from a 10% rise witnessed in both June and May. The slowdown in the rate of growth is as a result of output cuts by Chinese steel mills across the smog-hit Hebei province to curb pollution amid a spike in the prices of iron ore, the key steel-making raw material.
Tangshan – the top steelmaking city in China – 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 kept Chinese steel output growth under check in July.
China’s production shot up to a record high of 89.1 Mt in May as steel mills in the country cranked up output even though higher feedstock costs due to a spike in iron ore prices squeezed their profit margins. Fears of supply shortage due to mine disruptions in Brazil triggered a spurt in iron ore prices. Iron ore prices jumped to a five-year high In July.
The steel industry continues to reel under the effects of sustained oversupply of steel in the market, exacerbated by sustained growth 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 spiked 9% on a year-over-year comparison basis to roughly 577.1 Mt for the first seven months of 2019.
How Other Key Producers Fared in July
Among other major Asian producers, India – the second-largest steel producer – saw a 1.7% rise in production to 9.2 Mt in July. The WSA, earlier this year, said that it expects continuing infrastructure projects to support steel demand growth in India.
Output in Japan edged down 0.4% to 8.4 Mt in July while production in South Korea dropped 2.1% to 6 Mt. Consolidated output were up 3.9% to 113.3 Mt in Asia.
In North America, crude steel production ticked up 1.8% to 7.5 Mt in the United States. Growth slowed from a 3.1% rise seen a month ago.
The 25% tariff on steel imports, which the Trump administration levied in 2018, helped domestic steel industry capacity break above 80% (the minimum rate required for sustained profitability of the industry) last year after remaining below that level for years. The tariffs drove up production capacity of U.S. steel producers including United States Steel Corp. (X - Free Report) , Nucor Corp. (NUE - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) amid lower imports. Improved capacity also provided a boost to U.S. steel production.
However, higher production, partly driven by restarted mills, has contributed to the sharp decline in U.S. steel prices this year. Prices are down nearly 40% from the peak levels reached last year. Some of the U.S. steelmakers have recently taken steps to reduce capacity in the wake of declining domestic steel prices.
Meanwhile, output in Canada went up 2.9% to around 1.1 Mt. Overall production in North America dipped 1.5% to roughly 10.1 Mt.
In the Europe Union, production from Germany, the biggest producer in the region, fell 1% to 3.4 Mt. Output decreased 1.2% in Italy to around 2.1 Mt. France saw a 0.6% decline to roughly 1.3 Mt while Spain witnessed a 15.7% surge to 1.1 Mt. Total output inched down 0.2% in the European Union to around 13.6 Mt.
Output in the Middle East rose 3.8% to 3.1 Mt with Iran, the top producer in the region, seeing a 11.1% rise to 2.2 Mt. Africa recorded a 15.1% decline to around 1.1 Mt in the reported month.
Among other notable producers, production from Turkey dropped 10.6% to 2.9 Mt. Output from Brazil, the largest producer in South America, tumbled 20.7% to 2.4 Mt.
What Next?
Despite the seasonal weakness in steel demand, Chinese steel mills will likely to ramp up output as Tangshan is reportedly mulling to ease production cuts in September as well after relaxing the output curbs this month. This is expected to drive up production.
Moreover, steel demand in China is likely 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 China. The WSA envisions heightened government stimulus levels to boost steel demand in China this year.
Steel Stocks to Watch For
A few stocks currently worth considering in the steel space are L.B. Foster Company (FSTR - Free Report) , Commercial Metals Company (CMC - Free Report) and Carpenter Technology Corporation (CRS - Free Report) . While L.B. Foster sports a Zacks Rank #1 (Strong Buy), Commercial Metals and Carpenter Technology both carry 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 86.3% for 2019. Earnings estimates for the current year have been revised 12.4% upward over the last 60 days.
Commercial Metals has an expected earnings growth of 36.9% for the current fiscal. Earnings estimates for the current fiscal have been revised 1% upward over the last 60 days.
Carpenter Technology has an expected earnings growth of 13% for the current fiscal. Earnings estimates for the current fiscal have been revised 0.5% upward over the last 60 days.
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Global Steel Output Growth Eases as China Production Cools
Global crude steel production rose in July on higher output in China, the world's biggest steel maker. 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 1.7% year over year for the reported month to 156.7 million tons (Mt).
However, the growth in output for the reported month slowed from a 4.6% year-over-year rise witnessed in June as stringent anti-smog measures led to a slowdown in production growth in China.
China Output Growth Slows on Production Curbs
Production from China, which accounts for around half of the global steel output, went up 5% year over year to 85.2 Mt in July. However, this is down from a 10% rise witnessed in both June and May. The slowdown in the rate of growth is as a result of output cuts by Chinese steel mills across the smog-hit Hebei province to curb pollution amid a spike in the prices of iron ore, the key steel-making raw material.
Tangshan – the top steelmaking city in China – 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 kept Chinese steel output growth under check in July.
China’s production shot up to a record high of 89.1 Mt in May as steel mills in the country cranked up output even though higher feedstock costs due to a spike in iron ore prices squeezed their profit margins. Fears of supply shortage due to mine disruptions in Brazil triggered a spurt in iron ore prices. Iron ore prices jumped to a five-year high In July.
The steel industry continues to reel under the effects of sustained oversupply of steel in the market, exacerbated by sustained growth 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 spiked 9% on a year-over-year comparison basis to roughly 577.1 Mt for the first seven months of 2019.
How Other Key Producers Fared in July
Among other major Asian producers, India – the second-largest steel producer – saw a 1.7% rise in production to 9.2 Mt in July. The WSA, earlier this year, said that it expects continuing infrastructure projects to support steel demand growth in India.
Output in Japan edged down 0.4% to 8.4 Mt in July while production in South Korea dropped 2.1% to 6 Mt. Consolidated output were up 3.9% to 113.3 Mt in Asia.
In North America, crude steel production ticked up 1.8% to 7.5 Mt in the United States. Growth slowed from a 3.1% rise seen a month ago.
The 25% tariff on steel imports, which the Trump administration levied in 2018, helped domestic steel industry capacity break above 80% (the minimum rate required for sustained profitability of the industry) last year after remaining below that level for years. The tariffs drove up production capacity of U.S. steel producers including United States Steel Corp. (X - Free Report) , Nucor Corp. (NUE - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) amid lower imports. Improved capacity also provided a boost to U.S. steel production.
However, higher production, partly driven by restarted mills, has contributed to the sharp decline in U.S. steel prices this year. Prices are down nearly 40% from the peak levels reached last year. Some of the U.S. steelmakers have recently taken steps to reduce capacity in the wake of declining domestic steel prices.
Meanwhile, output in Canada went up 2.9% to around 1.1 Mt. Overall production in North America dipped 1.5% to roughly 10.1 Mt.
In the Europe Union, production from Germany, the biggest producer in the region, fell 1% to 3.4 Mt. Output decreased 1.2% in Italy to around 2.1 Mt. France saw a 0.6% decline to roughly 1.3 Mt while Spain witnessed a 15.7% surge to 1.1 Mt. Total output inched down 0.2% in the European Union to around 13.6 Mt.
Output in the Middle East rose 3.8% to 3.1 Mt with Iran, the top producer in the region, seeing a 11.1% rise to 2.2 Mt. Africa recorded a 15.1% decline to around 1.1 Mt in the reported month.
Among other notable producers, production from Turkey dropped 10.6% to 2.9 Mt. Output from Brazil, the largest producer in South America, tumbled 20.7% to 2.4 Mt.
What Next?
Despite the seasonal weakness in steel demand, Chinese steel mills will likely to ramp up output as Tangshan is reportedly mulling to ease production cuts in September as well after relaxing the output curbs this month. This is expected to drive up production.
Moreover, steel demand in China is likely 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 China. The WSA envisions heightened government stimulus levels to boost steel demand in China this year.
Steel Stocks to Watch For
A few stocks currently worth considering in the steel space are L.B. Foster Company (FSTR - Free Report) , Commercial Metals Company (CMC - Free Report) and Carpenter Technology Corporation (CRS - Free Report) . While L.B. Foster sports a Zacks Rank #1 (Strong Buy), Commercial Metals and Carpenter Technology both carry 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 86.3% for 2019. Earnings estimates for the current year have been revised 12.4% upward over the last 60 days.
Commercial Metals has an expected earnings growth of 36.9% for the current fiscal. Earnings estimates for the current fiscal have been revised 1% upward over the last 60 days.
Carpenter Technology has an expected earnings growth of 13% for the current fiscal. Earnings estimates for the current fiscal have been revised 0.5% upward over the last 60 days.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>