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Global Steel Output Up as China Mills Roar Back: What's Next?
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Global crude steel production expanded in August as steel mills in China – the world's biggest steel producer – ramped up production following a slowdown in July due to Beijing’s stringent anti-smog measures.
The World Steel Association ("WSA") – the international trade body for the iron and steel industry – reported yesterday that crude steel production for 64 reporting nations went up 3.4% year over year to 156 million tons (Mt) in August.
Chinese Mills Step Up Output
Production from China, which accounts for around half of the global steel output, shot up 9.3% year over year to 87.3 Mt in August. Chinese steel mills beefed up production last month in anticipation of higher domestic steel consumption over the September-October period – typically the peak demand season – and to boost supply ahead of the implementation of stricter anti-pollution production curbs across key steel-making provinces in the country.
The rate of growth in August is also up from a 5% rise witnessed in July. Growth slowed in July as a result of output cuts by Chinese mills across the smog-hit Hebei province to curb pollution. China’s top steelmaking city, Tangshan extended production cuts across its mills till the end of July to improve air quality. This intense production cut at the steelmaking hub in China’s top steel province of Hebei put a lid on Chinese steel output growth in July.
China’s production surged 10% year over year to an all-time high of 89.1 Mt in May as steel mills in the country bumped up output even though higher feedstock costs due to a spike in iron ore prices as a result of mine disruptions in Brazil squeezed their profit margins.
China’s steel overcapacity remains an overhang for the steel sector. Notwithstanding Sino-U.S. trade tensions, China’s steel mills cranked up output last year to take advantage of strong profit margins. China’s steel production climbed 6.6% year over year to reach 928.3 Mt last year.
According to the WSA, Chinese steel output has spiked 9.1% on a year-over-year comparison basis to roughly 664.9 Mt for the first eight months of 2019. A glut of Chinese steel has put downward pressure on both Chinese and global steel prices.
How Other Major Producers Fared in August
Among other major Asian producers, India – the second-largest steel producer – saw a 1.5% rise in production to 9.4 Mt in August. Steel consumption in India has been hurt in the recent times by a slowdown in economic activities in the country. However, investment in infrastructure projects is expected to support steel demand growth.
Output in Japan dropped 7.8% to 8.1 Mt in August. The U.S.-China trade conflict has triggered a slowdown in steel demand in that country. Production in South Korea also fell 2.6% to 5.9 Mt. Consolidated output were up 6.2% to 115.1 Mt in Asia.
In North America, crude steel production edged up 0.3% to 7.5 Mt in the United States. Growth slowed from a 1.8% rise seen a month ago.
The Trump administration’s imposition of hefty punitive tariffs on steel imports helped U.S. 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 trade actions 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 and also provided a boost to domestic steel production.
However, higher production driven by the added capacity has contributed to the sharp decline in U.S. steel prices this year. Some of the U.S. steelmakers have recently taken steps to reduce capacity in the wake of declining domestic steel prices. This has contributed to a decline in capacity utilization rate to below the important 80% level in recent weeks.
Meanwhile, output in Canada fell 8% to around 1.1 Mt. Overall production in North America slipped 3.1% to roughly 10 Mt.
In the Europe Union, production from Germany, the biggest producer in the region, was up 0.8% to 3.3 Mt. Output tumbled 26.7% in Italy to around 0.9 Mt. France saw a 11.2% rise to roughly 1.1 Mt while Spain witnessed a 4.6% decline to 1.1 Mt. Total output was down 2.2% in the European Union to around 11.5 Mt.
Output in the Middle East went up 3.9% to 3.2 Mt with Iran, the top producer in the region, seeing a 6.7% rise to 2.2 Mt. Africa recorded a 14.6% decline to around 1 Mt in the reported month.
Among other notable producers, production from Turkey slid 12.4% to 2.6 Mt. Output from Brazil, the largest producer in South America, dropped 13.4% to 2.5 Mt.
What Lies Ahead?
Major Chinese steel-producing provinces including Hebei and Shandong have enforced stringent production cuts this week to ensure clear skies during the first week of October as China prepares to celebrate the 70th anniversary of the People's Republic.
Notably, Tangshan has reportedly imposed new round of stricter production cuts starting September 24. Steel mills in the city will have to restrict their sintering and blast furnace output. The restrictions will remain in place until further notice. Handan, the other major steel-making city in Hebei, has also implemented similar output cuts.
As such, anti-pollution curbs across key steel-making provinces are expected to keep Chinese steel output growth under check. The supply restriction is also expected to lend some support to steel prices.
Meanwhile, 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. The WSA earlier noted that it 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 Carpenter Technology Corporation (CRS - Free Report) . While L.B. Foster sports a Zacks Rank #1 (Strong Buy), Carpenter Technology 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 86.3% for 2019. Earnings estimates for the current year have been revised 12.4% 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 2.4% upward over the last 60 days.
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Global Steel Output Up as China Mills Roar Back: What's Next?
Global crude steel production expanded in August as steel mills in China – the world's biggest steel producer – ramped up production following a slowdown in July due to Beijing’s stringent anti-smog measures.
The World Steel Association ("WSA") – the international trade body for the iron and steel industry – reported yesterday that crude steel production for 64 reporting nations went up 3.4% year over year to 156 million tons (Mt) in August.
Chinese Mills Step Up Output
Production from China, which accounts for around half of the global steel output, shot up 9.3% year over year to 87.3 Mt in August. Chinese steel mills beefed up production last month in anticipation of higher domestic steel consumption over the September-October period – typically the peak demand season – and to boost supply ahead of the implementation of stricter anti-pollution production curbs across key steel-making provinces in the country.
The rate of growth in August is also up from a 5% rise witnessed in July. Growth slowed in July as a result of output cuts by Chinese mills across the smog-hit Hebei province to curb pollution. China’s top steelmaking city, Tangshan extended production cuts across its mills till the end of July to improve air quality. This intense production cut at the steelmaking hub in China’s top steel province of Hebei put a lid on Chinese steel output growth in July.
China’s production surged 10% year over year to an all-time high of 89.1 Mt in May as steel mills in the country bumped up output even though higher feedstock costs due to a spike in iron ore prices as a result of mine disruptions in Brazil squeezed their profit margins.
China’s steel overcapacity remains an overhang for the steel sector. Notwithstanding Sino-U.S. trade tensions, China’s steel mills cranked up output last year to take advantage of strong profit margins. China’s steel production climbed 6.6% year over year to reach 928.3 Mt last year.
According to the WSA, Chinese steel output has spiked 9.1% on a year-over-year comparison basis to roughly 664.9 Mt for the first eight months of 2019. A glut of Chinese steel has put downward pressure on both Chinese and global steel prices.
How Other Major Producers Fared in August
Among other major Asian producers, India – the second-largest steel producer – saw a 1.5% rise in production to 9.4 Mt in August. Steel consumption in India has been hurt in the recent times by a slowdown in economic activities in the country. However, investment in infrastructure projects is expected to support steel demand growth.
Output in Japan dropped 7.8% to 8.1 Mt in August. The U.S.-China trade conflict has triggered a slowdown in steel demand in that country. Production in South Korea also fell 2.6% to 5.9 Mt. Consolidated output were up 6.2% to 115.1 Mt in Asia.
In North America, crude steel production edged up 0.3% to 7.5 Mt in the United States. Growth slowed from a 1.8% rise seen a month ago.
The Trump administration’s imposition of hefty punitive tariffs on steel imports helped U.S. 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 trade actions 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 and also provided a boost to domestic steel production.
However, higher production driven by the added capacity has contributed to the sharp decline in U.S. steel prices this year. Some of the U.S. steelmakers have recently taken steps to reduce capacity in the wake of declining domestic steel prices. This has contributed to a decline in capacity utilization rate to below the important 80% level in recent weeks.
Meanwhile, output in Canada fell 8% to around 1.1 Mt. Overall production in North America slipped 3.1% to roughly 10 Mt.
In the Europe Union, production from Germany, the biggest producer in the region, was up 0.8% to 3.3 Mt. Output tumbled 26.7% in Italy to around 0.9 Mt. France saw a 11.2% rise to roughly 1.1 Mt while Spain witnessed a 4.6% decline to 1.1 Mt. Total output was down 2.2% in the European Union to around 11.5 Mt.
Output in the Middle East went up 3.9% to 3.2 Mt with Iran, the top producer in the region, seeing a 6.7% rise to 2.2 Mt. Africa recorded a 14.6% decline to around 1 Mt in the reported month.
Among other notable producers, production from Turkey slid 12.4% to 2.6 Mt. Output from Brazil, the largest producer in South America, dropped 13.4% to 2.5 Mt.
What Lies Ahead?
Major Chinese steel-producing provinces including Hebei and Shandong have enforced stringent production cuts this week to ensure clear skies during the first week of October as China prepares to celebrate the 70th anniversary of the People's Republic.
Notably, Tangshan has reportedly imposed new round of stricter production cuts starting September 24. Steel mills in the city will have to restrict their sintering and blast furnace output. The restrictions will remain in place until further notice. Handan, the other major steel-making city in Hebei, has also implemented similar output cuts.
As such, anti-pollution curbs across key steel-making provinces are expected to keep Chinese steel output growth under check. The supply restriction is also expected to lend some support to steel prices.
Meanwhile, 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. The WSA earlier noted that it 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 Carpenter Technology Corporation (CRS - Free Report) . While L.B. Foster sports a Zacks Rank #1 (Strong Buy), Carpenter Technology 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 86.3% for 2019. Earnings estimates for the current year have been revised 12.4% 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 2.4% upward over the last 60 days.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +98%, +119% and +164% in as little as 1 month. The stocks in this report could perform even better.
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