Zacks Industry Outlook Highlights: ArcelorMittal, United StatesSteel, Nucor and AK Steel Holding PR Newswire 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 Industry: Steel Link: http://www.zacks.com/commentary/31511/steel-industry-stock-outlook---march-2014 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. About Zacks Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! 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Zacks Industry Outlook Highlights: ArcelorMittal, United StatesSteel, Nucor and AK Steel Holding
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