For Immediate Release
Chicago, IL – June 25, 2012 – Today, Zacks Equity Research discusses the U.S. Metals & Mining, including ArcelorMittal (MT), United States Steel Corp. (X), Nucor Corporation (NUE) and AK Steel Holding Corporation (AKS).
A synopsis of today’s Industry Outlook is presented below. The full article can be read at
As the major stakeholder (about 60%) of the metals market, the steel industry was severely bruised by the global economic downturn. Recovery, however, has been swift and forceful. According to the World Steel Association, world crude steel production reached a record level of 1,527 million tons (Mt) in 2011, outperforming the 2010 record of 1,414 Mt, a 6.8% jump. This trend has largely remained in place this year, though the emerging growth worries will likely force some producers to take production off-line.
China remains the largest steel-producing country, accounting for roughly half of all global production at 46%, though its first quarter 2012 volumes were barely up from the year-earlier level. Japan, the second largest producer, posted a 4.1% decline. The U.S. is in the third position, though its first quarter production was 9.2% higher year over year. North American crude steel production was up 7.7% in the first quarter, Asia was flat, while Europe dipped 3.8%. In April 2012, world crude steel production was down 3% from March, but up 1% from the April 2011 levels.
As we look into the first quarter results of the steel companies in our coverage -- ArcelorMittal (MT), United States Steel Corp. (X), Nucor Corporation (NUE) and AK Steel Holding Corporation (AKS) -- we find revenues benefitted from higher average steel prices. On the volume front, ArcelorMittal and U.S. Steel saw a rise, while Nucor and AK Steel suffered declines. Revenues increased at all the companies except AK Steel. However, we note margin compression across the board.
The automotive and construction markets have historically been the largest consumers of steel. The automotive sector has shown significant promise. In February 2012, total motor vehicle sales reached their highest level since February 2008 at 15.1 million SAAR (Seasonally Adjusted Annual Rate). For the first five months of 2012, sales have averaged 14.4 million SAAR. Many auto manufacturers made their best Memorial Day sales in over five years. Motor vehicle sales were at 13.8 million in May, declining from 14.4 million in April. Even though sales slid to the lowest level so far in 2012, it is still better than consensus expectations from the beginning of the year. On a year-over-year basis, sales increased 26% in May.
The construction sector has been a drag on steel companies’ earnings. According to the American Institute of Architects, the architecture billings index, an economic indicator that provides an approximately nine- to twelve-month glimpse into the future of non-residential construction spending activity, was 48.4 in April 2012. This followed a 50.4 reading in March, and of significance since any score above 50 indicates an increase in billings. After remaining at a level over 50 for five consecutive months, the index has slipped into negative territory. Given the continued uncertainty in the market, we do not expect any immediate recovery in this sector.
The residential construction market has improved in recent months, but the pace of improvement has been very slow and halting. This means that this end market is unlikely to emerge as a key growth driver for steel producers any time soon.
The World Steel Association projects global steel usage to rise 3.6% in 2012, a sharp deceleration from 2011’s 5.6% growth. This reflects continuing slowdown of Chinese steel demand and Eurozone debt crisis uncertainties. Questions about the U.S. growth outlook make another cloud on the horizon.
China’s steel use in 2012 is estimated to grow 4% to 648.8 million tons, following 6.2% growth in 2011. The slackening is due to the economy entering a less steel-intensive growth phase as a result of the government’s efforts to rebalance the economy and restrain the real estate bubble. After a weak performance in 2011, India is expected to grow by 6.9% to reach 72.5 Mt.
Apparent steel use in the U.S. is forecast to grow 5.7% in 2012. In Central and South America, apparent steel use will attain a historical high of 49.1 Mt, up 6.8% in 2012. Brazil is expected to return to positive growth. Japan’s steel use is expected to drop 0.6% to 63.7 Mt in 2012 due to the impact of exchange rate appreciation, despite the reconstruction efforts following the March 2011 earthquake.
Steel usage in the European Union is expected to decline by 1.2% to 150.9 Mt in 2012 as sovereign debt problems persist. Given the scenario in Europe, ArcelorMittal, the world's largest steelmaker by volume and Europe's largest steelmaker, had earlier decided to idle five of its 25 blast furnaces in Europe and announced the extended idling of a number of facilities. The company will continue to align its steel growth projects to match demand situations.
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