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US Steel Utilization Sinks as Coronavirus Corrodes Demand
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U.S. steel industry capacity utilization plummeted to multi-year lows as the coronavirus pandemic has decimated steel demand across major end-use markets. The coronavirus-led demand destruction has forced domestic steel mills to idle operations and scale down production.
US Raw Steel Output and Utilization Tumble
According to the latest American Iron and Steel Institute (“AISI”) weekly report, domestic raw steel production was 1,256,000 net tons for the week ending Apr 11, an 18.1% drop from 1,534,000 net tons for the week ending Apr 4. Reported weekly production tumbled 33.6% from 1,892,000 net tons logged for the same period a year ago. This follows an 18.9% year-over-year decline and an 8.1% week-over-week drop for the week ending Apr 4.
Capacity utilization — a major indicator of the health of the U.S. steel industry — slumped to 56.1% for the reported week, the lowest level since 2009. Utilization rate declined from the previous week’s reading of 68.5% and also dropped from 81.3% a year ago, per the AISI.
U.S. steel capacity utilization started to decline in 2008 during the global financial crisis after remaining above the key 80% (the minimum rate required for sustained profitability of the industry) level for a number of years. Utilization nosedived to nearly 50% in 2009 before trending upward on recovery in the U.S. economy from the financial crisis.
The U.S. steel industry capacity broke above 80% in 2018 on 25% tariff on steel imports, which the Trump administration had levied under Section 232 of the Trade Expansion Act of 1962. U.S. steel mills operated near or above that level for most part of 2019.
Meanwhile, by-region, output from Great Lakes tumbled roughly 22% on a weekly basis to 430,000 net tons in the reported week. Mills in the Northeast produced 104,000 net tons of raw steel, down around 46% from the previous week. Production in the Southern region dropped 8% to 556,000 net tons in the reported week. The Midwest region produced 122,000 net tons of raw steel, down roughly 12% from a week ago. Output dropped 12% in the Western region to 44,000 net tons.
Year to date (through Apr 11), raw steel production on an adjusted basis clocked 26,323,000 net tons at a capability utilization rate of 77.9%, down 4.9% from 27,665,000 net tons recorded in the same period a year ago at a capability utilization rate of 81.5%, the AISI noted.
US Steel Mills Roiled by Slumping Demand, Prices
Coronavirus has taken a heavy toll on the U.S. steel industry. The pandemic, which has so far infected nearly 2 million in at least 180 countries and claimed more than 126,000 lives, has put the global economy on the edge and triggered sell-offs across stock markets around the world. The outbreak has also brought business activities across the globe to a standstill.
The pandemic has marred the fragile recovery in the U.S. steel industry, which reeled under the effects of a sharp decline in domestic steel prices and damaging impacts of the trade war last year.
U.S. steel stocks, which had been out of favor for most part of 2019, gained some traction toward the end of the year on the back of an uptick in domestic steel prices and the de-escalation in trade tensions. However, the outbreak has triggered a broad-based selloff in steel stocks this year.
Shares of major American steel makers such as United States Steel Corp. (X - Free Report) , Nucor Corporation (NUE - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) have plummeted roughly 40%, 32% and 32%, respectively, year to date.
Steel Dynamics currently carries a Zacks Rank #3 (Hold), while both United States Steel and Nucor have a Zacks Rank #4 (Sell).
Meanwhile, U.S. steel prices are on the downswing of late amid ebbing end-market demand. The benchmark hot-rolled coil steel (HRC) prices have been sliding over the past few weeks on worries over demand slowdown amid production shutdowns by automakers.
Major U.S. automakers have temporarily shuttered production in North America in an effort to curb the spread of coronavirus. Detroit’s big three automakers Ford Motor Company (F - Free Report) , General Motors Company (GM - Free Report) and Fiat Chrysler Automobiles N.V. have shut all their North American factories amid the virus crisis.
Ford recently said that it is considering a phased restart of its plants starting second quarter. Fiat Chrysler also recently stated that it plans to reopen its North American plants on May 4. There has been no official confirmation from General Motors yet.
Moreover, a slump in crude oil prices is likely to lead to a slowdown in demand for steel in the energy space. Oil prices have halved this year as coronavirus dented demand for crude. Some of the major energy companies have slashed their capital spending in the wake of the oil collapse.
In response to the oil price rout, United States Steel is indefinitely idling all or most of Lone Star Tubular Operations and Lorain Tubular Operations starting late-May. A few other steel makers have also idled operations in the wake of falling demand across major end-markets.
Leading integrated producer of iron ore and steel, Cleveland-Cliffs Inc. (CLF - Free Report) recently said that it is temporarily idling production at two of its iron ore mining operations due to weak market conditions. Cleveland-Cliffs decided to adjust the production of iron ore during the first half of the year. The company stated that it will quickly restart and ramp up production, once the steel market in North America improves.
Moreover, a slowdown in steel demand in China, the world’s top consumer, is a major concern for the steel industry. Coronavirus has brought China's supercharged economy to a shuddering halt. The pandemic has slowed down activities in construction (a major steel end-use market) in the country. While construction activities in China improved somewhat in March after a heavy decline in February, they remain a long way from normal.
The automobile sector in China is also feeling the pinch of the outbreak. The world's biggest automotive market suffered a 43.3% year-over-year decline in car sales in March (the 21st consecutive monthly decline) as coronavirus-induced shutdowns led to a slump in demand. Cumulative sales in the first quarter fell 42.4% year over year, per the China Association of Automobile Manufacturers (“CAAM”). Automakers in the country are operating below their production capacity as shortage of workers and disrupted supply of auto components are delaying a recovery.
While China has crawled out of the worst of the coronavirus impact and is limping back to normalcy, a possible surge in the second wave of infections has stoked concerns of late. Industrial activities in China are likely to remain far from normal over the near term as the world’s second-largest economy remains constrained by shortage of labor and supply chain delays. This is likely to thwart a material recovery in the demand environment for steel, at least through the first half of the year.
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US Steel Utilization Sinks as Coronavirus Corrodes Demand
U.S. steel industry capacity utilization plummeted to multi-year lows as the coronavirus pandemic has decimated steel demand across major end-use markets. The coronavirus-led demand destruction has forced domestic steel mills to idle operations and scale down production.
US Raw Steel Output and Utilization Tumble
According to the latest American Iron and Steel Institute (“AISI”) weekly report, domestic raw steel production was 1,256,000 net tons for the week ending Apr 11, an 18.1% drop from 1,534,000 net tons for the week ending Apr 4. Reported weekly production tumbled 33.6% from 1,892,000 net tons logged for the same period a year ago. This follows an 18.9% year-over-year decline and an 8.1% week-over-week drop for the week ending Apr 4.
Capacity utilization — a major indicator of the health of the U.S. steel industry — slumped to 56.1% for the reported week, the lowest level since 2009. Utilization rate declined from the previous week’s reading of 68.5% and also dropped from 81.3% a year ago, per the AISI.
U.S. steel capacity utilization started to decline in 2008 during the global financial crisis after remaining above the key 80% (the minimum rate required for sustained profitability of the industry) level for a number of years. Utilization nosedived to nearly 50% in 2009 before trending upward on recovery in the U.S. economy from the financial crisis.
The U.S. steel industry capacity broke above 80% in 2018 on 25% tariff on steel imports, which the Trump administration had levied under Section 232 of the Trade Expansion Act of 1962. U.S. steel mills operated near or above that level for most part of 2019.
Meanwhile, by-region, output from Great Lakes tumbled roughly 22% on a weekly basis to 430,000 net tons in the reported week. Mills in the Northeast produced 104,000 net tons of raw steel, down around 46% from the previous week. Production in the Southern region dropped 8% to 556,000 net tons in the reported week. The Midwest region produced 122,000 net tons of raw steel, down roughly 12% from a week ago. Output dropped 12% in the Western region to 44,000 net tons.
Year to date (through Apr 11), raw steel production on an adjusted basis clocked 26,323,000 net tons at a capability utilization rate of 77.9%, down 4.9% from 27,665,000 net tons recorded in the same period a year ago at a capability utilization rate of 81.5%, the AISI noted.
US Steel Mills Roiled by Slumping Demand, Prices
Coronavirus has taken a heavy toll on the U.S. steel industry. The pandemic, which has so far infected nearly 2 million in at least 180 countries and claimed more than 126,000 lives, has put the global economy on the edge and triggered sell-offs across stock markets around the world. The outbreak has also brought business activities across the globe to a standstill.
The pandemic has marred the fragile recovery in the U.S. steel industry, which reeled under the effects of a sharp decline in domestic steel prices and damaging impacts of the trade war last year.
U.S. steel stocks, which had been out of favor for most part of 2019, gained some traction toward the end of the year on the back of an uptick in domestic steel prices and the de-escalation in trade tensions. However, the outbreak has triggered a broad-based selloff in steel stocks this year.
Shares of major American steel makers such as United States Steel Corp. (X - Free Report) , Nucor Corporation (NUE - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) have plummeted roughly 40%, 32% and 32%, respectively, year to date.
Steel Dynamics currently carries a Zacks Rank #3 (Hold), while both United States Steel and Nucor have a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Meanwhile, U.S. steel prices are on the downswing of late amid ebbing end-market demand. The benchmark hot-rolled coil steel (HRC) prices have been sliding over the past few weeks on worries over demand slowdown amid production shutdowns by automakers.
Major U.S. automakers have temporarily shuttered production in North America in an effort to curb the spread of coronavirus. Detroit’s big three automakers Ford Motor Company (F - Free Report) , General Motors Company (GM - Free Report) and Fiat Chrysler Automobiles N.V. have shut all their North American factories amid the virus crisis.
Ford recently said that it is considering a phased restart of its plants starting second quarter. Fiat Chrysler also recently stated that it plans to reopen its North American plants on May 4. There has been no official confirmation from General Motors yet.
Moreover, a slump in crude oil prices is likely to lead to a slowdown in demand for steel in the energy space. Oil prices have halved this year as coronavirus dented demand for crude. Some of the major energy companies have slashed their capital spending in the wake of the oil collapse.
In response to the oil price rout, United States Steel is indefinitely idling all or most of Lone Star Tubular Operations and Lorain Tubular Operations starting late-May. A few other steel makers have also idled operations in the wake of falling demand across major end-markets.
Leading integrated producer of iron ore and steel, Cleveland-Cliffs Inc. (CLF - Free Report) recently said that it is temporarily idling production at two of its iron ore mining operations due to weak market conditions. Cleveland-Cliffs decided to adjust the production of iron ore during the first half of the year. The company stated that it will quickly restart and ramp up production, once the steel market in North America improves.
Moreover, a slowdown in steel demand in China, the world’s top consumer, is a major concern for the steel industry. Coronavirus has brought China's supercharged economy to a shuddering halt. The pandemic has slowed down activities in construction (a major steel end-use market) in the country. While construction activities in China improved somewhat in March after a heavy decline in February, they remain a long way from normal.
The automobile sector in China is also feeling the pinch of the outbreak. The world's biggest automotive market suffered a 43.3% year-over-year decline in car sales in March (the 21st consecutive monthly decline) as coronavirus-induced shutdowns led to a slump in demand. Cumulative sales in the first quarter fell 42.4% year over year, per the China Association of Automobile Manufacturers (“CAAM”). Automakers in the country are operating below their production capacity as shortage of workers and disrupted supply of auto components are delaying a recovery.
While China has crawled out of the worst of the coronavirus impact and is limping back to normalcy, a possible surge in the second wave of infections has stoked concerns of late. Industrial activities in China are likely to remain far from normal over the near term as the world’s second-largest economy remains constrained by shortage of labor and supply chain delays. This is likely to thwart a material recovery in the demand environment for steel, at least through the first half of the year.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>