Chicago, IL – June 04, 2015 – Today, Zacks Equity Research discusses the Steel, including ArcelorMittal (MT), United States Steel Corp. (X), Vale S.A. (VALE), Rio Tinto plc (RIO) and BHP Billiton Ltd. ( BHP). Industry: Steel Link: https://www.zacks.com/commentary/47402/steel-industry-stock-outlook---june-2015 While the strong automobile and improving construction sectors continue to support steel demand, a slowdown in China, surging steel imports in the U.S. and falling oil prices have emerged as the major problems for the industry. Moreover, the steel industry’s perennial concern -- overcapacity -- remains. Per the World Steel Association, global steel production decreased 1.7% to 536 metric tons (Mt) within the January—April period as production shrank across all regions. China, the world’s largest steel maker, continued to disappoint with a 1.3% decline, while its neighbor India fared better, registering a 6.7% increase in production.
Economic slowdown in China has dealt a massive blow to the global steel industry. China's steel industry is still reeling under overcapacity with few signs of recovery. Steel industry PMI in May dipped 5.8 points to 42.4, a 16-month low. The PMI reading translates into China's steel industry having been in recession for 14 months. Steel usage is expected to dip 0.5% in 2015 and 2016 as per the World Steel Association’s short range outlook published in April this year.
Steel imports surged to alarmingly high levels in the back half of last year, which continued in the first quarter of 2015 as well. This is a negative for steel players like ArcelorMittal (MT) and United States Steel Corp. ( X). And to top it all, the slump in oil prices had a negative impact on steel prices given the industry’s 10% exposure to the energy sector. Steel demand from energy companies is expected to go down as exploration companies reduce their capital expenditure budgets. U.S Steel, one of the biggest suppliers to energy companies in North America along with AK Steel and ArcelorMittal, continues to be impacted by the slowdown.
In the first quarter of 2015, iron ore, one of the primary raw materials for steelmakers, suffered its largest quarterly loss since 2009 as surging low-cost supplies from Australia and Brazil led to a glut on the global market as demand slowed in China, the top consumer. Three big iron ore miners -- Vale S.A. (VALE), Rio Tinto plc (RIO) and BHP Billiton Ltd. ( BHP) -- reported record production, while global steel production declined 1.8% in the quarter.
Since steel companies enter into long-term supply agreements with their suppliers, they have not been able to take full advantage of lower iron ore prices. When these supply agreements are renegotiated this year, they are likely to be executed at lower prices and hence, help in reducing unit production costs of the steel players. While companies like ArcelorMittal and U.S. Steel that produce most of their iron ore requirements through captive mines are unlikely to benefit from this, companies like AK Steel will have a competitive edge as they are less vertically integrated. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report ARCELOR MITTAL (MT): Free Stock Analysis Report UTD STATES STL (X): Free Stock Analysis Report VALE SA (VALE): Free Stock Analysis Report RIO TINTO-ADR (RIO): Free Stock Analysis Report BHP BILLITN LTD (BHP): Free Stock Analysis Report To read this article on Zacks.com click here.
|