Zacks Industry Outlook Highlights: ArcelorMittal, United StatesSteel, Nucor
and AK Steel Holding
CHICAGO, March 3, 2014
CHICAGO, March 3, 2014 Today, Zacks Equity Research discusses the Steel,
including ArcelorMittal (NYSE:MT-Free Report), United States Steel Corp.
(NYSE:X-Free Report), Nucor Corp. (NYSE:NUE-Free Report) and AK Steel Holding
Corp. (NYSE:AKS-Free Report).
Zacks Investment Research, Inc., www.zacks.com
Steel: The Measure of Economic Progress
Steel can be rightly termed the basic building block of modern society given
its usage in almost every sphere -- ranging from buildings, vehicles, machines
or even a tin can that preserves food. The industry's fortunes are dependent
on the growth of its user industries, namely, automobiles, consumer durables
and infrastructure. The volume of steel consumed has thus been the barometer
for measuring development and economic progress.
Increasing modernization in the 21st century has led to a doubling of global
steel production from 851 Mt (million tons) at the turn of the century to
1,607 Mt in 2013. The size notwithstanding, the industry remains relatively
fragmented. It is also highly cyclical and intensely competitive.
In the past two years, the continuing Euro-zone problem, economic stagnation
or slow growth in developed economies and a cooling of emerging economies took
a toll on the industry. Growth in the Chinese economy, which in recent years
has been one of the main demand drivers for steel, slowed down. Overcapacity
has also been a perennial problem. Stiff competition in the United States from
cheaper imports and from domestic producers with new or expanded facilities
continues to result in significant oversupply of steel compared to demand.
However, as urban population increases worldwide, so will the need for steel
to build skyscrapers and public-transport infrastructure. Emerging economies
will also continue to be a major driver of demand due to the huge amount of
steel required for urbanization and industrialization. The demand for steel is
thus expected to remain strong in the years to come.
Global Production: Up in 2013, Starts 2014 on a Tepid Note
As mentioned above, world crude steel production was 1,607 Mt in 2013,
reflecting a 3.5% annual climb, led by increase in Asia and the Middle East
that helped counter the declines elsewhere. China was once again the leading
producer of steel, contributing a record 48.6% of the global output at 779 Mt,
a 7.5% annual rise. Production in Japan, the second largest producer,
increased 3% year over year to 111 Mt.
The United States held the third spot, producing 87 Mt of crude steel, which
declined 2% annually. India commanded the fourth position with a production of
81 Mt, up 5% year over year. Production in Europe declined 1.8% year over year
to 165.6 Mt of crude steel in 2013. Even though production in Europe declined
in for the full year, the fourth quarter registered the first positive
year-over-year movement since the fourth quarter of 2011.
However, the steel industry sputtered in the New Year with world crude steel
production declining 0.4% to 130 Mt in January. China was a drag with a 3.2%
decline due to the slowdown in industrial activities during the Chinese Lunar
New Year holidays. Japan increased 6.1% while production in India remained
flat. Production in the U.S was down 0.5%. Europe outshined the other regions
with a 7.3% rise in production, continuing the positive momentum witnessed in
the fourth quarter of 2013.
Capacity Utilization Below 80%
The average capacity utilization ratio in 2013 was 78% compared with 76% in
2012. Despite the global rise in supply in 2013, total capacity utilization
remained stubbornly below the 80% level throughout the year. The crude steel
capacity utilization ratio in Jan 2014 was 74.4%, 2.5 percentage points lower
year over year, but up 0.2 percentage points sequentially.
Steel Prices - Drivers & Trends
Steel prices are generally volatile owing to the highly cyclical nature of the
global steel industry. Rising raw material prices have a direct impact on
steel prices. Furthermore, overcapacity, a glut in cheaper Chinese steel
imports, economic conditions and shifts toward other substitutes significantly
impact steel prices.
This was what affected steel prices in 2013. The oversupply of steel due to
imports from China in the market outstripped demand. Add to this, the
situation in Europe and tempering growth in Asia, kept prices in check. The
lower steel prices have affected margins of major steelmakers including
ArcelorMittal (NYSE:MT-Free Report), United States Steel Corp. (NYSE:X-Free
Report), Nucor Corp. (NYSE:NUE-Free Report) and AK Steel Holding Corp.
(NYSE:AKS-Free Report) for major part of the year.
A sustained downside in steel prices will materially affect the margins of
steel companies. We believe that the recovery in pricing momentum will be
driven by a reviving economy, stabilization in the Euro-zone and a rebound in
construction activity in the developing countries, in particular China, India
and South Korea.
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