Zacks Industry Outlook Highlights: United States Steel, AK Steel Holding, ArcelorMittal, Nucor Corporation and Steel Dynamics

For Immediate Release

Chicago, IL – January 17, 2017 – Today, Zacks Equity Research discusses the Industry: Steel, including United States Steel Corp. (NYSE:X – Free Report ), AK Steel Holding Corporation (NYSE: AKS – Free Report ), ArcelorMittal (NYSE: MT – Free Report ), Nucor Corporation (NYSE: NUE – Free Report ) and Steel Dynamics Inc. (NASDAQ: STLD – Free Report ).

Industry: Steel

Link: https://www.zacks.com/commentary/101392/steel-industry-stock-outlook---jan-2017

The steel industry is currently reeling from the economic slowdown in China, and the continued weakness in the manufacturing sector and the glut of foreign steel imports into the U.S., despite sustained demand from the automobile and construction sectors.

Per the World Steel Association’s data available til Nov 2016, global steel production edged up 0.4% to 1468 metric tons (Mt). China, the world’s largest steel maker, delivered a 1.1% rise in steel production during the time period. Economic slowdown in China has dealt a massive blow to the global steel industry. Overcapacity and lower steel prices are hurting margins of Chinese steel producers. To negate these factors, efforts have been undertaken to reduce overcapacity and upgrade production in China's steel industry.

China’s economy grew at an annual rate of 6.7% in the third quarter of 2016, unchanged from the prior two quarters. China official steel PMI dropped to 47.6 in December, following two months of gains, with output contracting sharply owing to production curbs implemented by regulators on environmental concerns.

According to the World Steel Association’s short range outlook published in October, steel demand decline in 2016 will be less severe than previously expected. To mitigate the impact of rebalancing, the Chinese government issued a number of mini stimulus measures to boost infrastructure spending. However, the rebound in the real estate market is limited and not sustainable as inventory levels remain very high. Consequently, the construction sector will be deterrent for steel demand and manufacturing sectors have only limited room for recovery. Steel demand in China is projected to decline 2.0% in 2017.

Additionally, the steel industry is challenged by waning investments, turbulence in the financial market and geopolitical conflicts in many developing regions. Given the industry’s 10% exposure to the energy sector, lower oil prices have weighed down prices of steel as well. Steel demand from energy companies continues to be weak due to declining capital expenditure budgets. United States Steel Corp. (NYSE: X – Free Report ), which is the biggest supplier to energy companies in North America, along with AK Steel Holding Corporation (NYSE: AKS – Free Report ) and ArcelorMittal (NYSE: MT – Free Report ), remains affected by the slowdown.

U.S. steel mills remain impacted by depressed capacity utilization and a surge of unfairly traded imports. The domestic market continues to be inundated with cheap imports from overseas producers, especially from China. American steel makers including Nucor Corporation (NYSE: NUE – Free Report ), United States Steel, AK Steel, Steel Dynamics Inc. (NASDAQ: STLD – Free Report ) and ArcelorMittal USA, a part of ArcelorMittal, have bore the brunt of high levels of cheap imports. This has resulted in declining orders, idling of mills and layoffs across the board.

Consequently, U.S. steel makers continue to actively press the U.S. regulators to stop unfair trade practices and enforce new trade laws to rescue the crisis-hit American steel industry. Consequently, steel market conditions have been recovering lately, driven by favorable developments on steel trade cases in the recent past. Moreover, steel prices have rebounded partially of late, helped by punitive trade actions that led to levy of tariffs on imports.

Sector Level Earnings Trend

Within the Zacks Industry classification, the steel industry falls under the broader Basic Materials sector (one of the 16 Zacks sectors). The sector put up a 4.7% year-over-year increase in earnings on the scoreboard for the third quarter.

Though sector growth will remain in negative territory in the fourth quarter, a dip of 0.8% projected for the quarter is not that steep compared to the third quarter. The sector will decline 0.6% in the first quarter of 2017. The earnings graph will enter the positive territory and log growth of 9.2%, 6.9% and 15.9% in the second, third, and fourth quarters of 2017, respectively.

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United States Steel Corporation (X): Free Stock Analysis Report
 
AK Steel Holding Corporation (AKS): Free Stock Analysis Report
 
ArcelorMittal (MT): Free Stock Analysis Report
 
Nucor Corporation (NUE): Free Stock Analysis Report
 
Steel Dynamics, Inc. (STLD): Free Stock Analysis Report
 
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