For Immediate Release
Chicago, IL –December 24, 2018 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Schnitzer Steel Industries, Inc. SCHN, POSCO PKX, United States Steel Corp. X, Nucor Corp. NUE and Steel Dynamics, Inc. STLD
Here are highlights from Friday’s Analyst Blog:
China Pushes Up November Global Steel: Output Worries Ahead
Global crude steel production expanded year over year in November on the back of a surge in output in China, the world's biggest steel maker. According to the latest report from the World Steel Association ("WSA") – the international trade body for the iron and steel industry – crude steel production for 64 reporting nations spiked 5.8% year over year for the reported month to 148.6 million tons (Mt).
Chinese Output Rise Y/Y
Production from China, which accounts for around half of the global steel output, shot up 10.8% year over year to 77.6 Mt in November, the WSA reported yesterday. However, this marks a decline from record high production of 82.6 Mt logged in October, reflecting the impact of reduced profit margins and winter output cuts that are aimed at cleaning up the environment.
Chinese crude steel output rose 6.7% year over year to 857.37 million tons for the first eleven months of 2018, according to China's National Bureau of Statistics (“NBS”). A surge in Chinese output amid sluggish domestic steel demand has triggered concerns that a glut of Chinese steel will put downward pressure on steel prices globally.
However, production is likely to tighten in the coming months as China started implementing a four-month reduction in output in mid-November aimed at curbing pollution during the winter months.
How Other Major Producers Fared
Among other major Asian producers, India saw a 1.3% drop in production to 8.5 Mt for the reported month. Output in Japan edged down 0.5% to 8.7 Mt in November while production in South Korea rose 1.1% to 5.9 Mt. Consolidated output were up 8% to 104.5 Mt in Asia.
In North America, crude steel production surged 11.8% to 7.4 Mt in the United States. Broad-based tariffs on steel imports, which the Trump administration levied in March 2018, are boosting production capacity of U.S. steel producers amid lower imports. The tariffs have helped U.S. steel industry capacity break above the important 80% level – the minimum rate required for sustained profitability of the industry.
American steel mills are also benefiting from higher domestic steel prices courtesy of the Trump administration’s trade actions. Higher steel prices are driving the margins of U.S. steel makers including United States Steel Corp., Nucor Corp. and Steel Dynamics, Inc.
Meanwhile, output in Canada fell 4.1% to around 1.1 Mt in November. Overall production in North America was up 6.3% to roughly 10.1 Mt.
In the Europe Union, production from Germany, the biggest producer in the region, fell 2.9% to 3.5 Mt. Output also went down 1% in Italy to 2.2 Mt while climbing 12.8% to 1.4 Mt in France. Spain saw a 0.7% decline to 1.3 Mt. Total output went up 1.2% in the European Union to 14.1 Mt.
Output in the Middle East jumped 9.1% to 2.9 Mt with Iran, the top producer in the region, seeing a 2.5% rise to 2 Mt. Africa logged a 6.1% gain to 1.3 Mt in the reported month.
Among other notable producers, production from Turkey was down 2.1% to 3.1 Mt. Output from Brazil, the largest producer in South America, dropped 6.1% to 2.8 Mt.
China is a Risk on the Horizon
A slowdown in steel demand in China, the world’s top consumer, amid a cooling Chinese economy is a major concern for the steel industry. Signs of weakness across the country’s major steel end-use markets – construction and automotive – as reflected by declining car sales and a softening housing market have clouded steel demand outlook.
China’s automobile sales dropped year over year in November for the fifth straight month amid a slowing economy and tariff war with the United States. Chinese automobile sales slumped 13.9% to roughly 2.55 million units in November, per the China Association of Automobile Manufacturers.
China’s economy grew at a slower-than-expected pace of 6.5% in the third quarter on a year-over-year basis, the weakest in nine years, amid trade frictions. International Monetary Fund (“IMF”), in October, cut China's GDP forecast for 2019 to 6.2% from its earlier view of 6.4% citing the ongoing trade war.
The WSA expects steel demand in China to decelerate into 2019 due to continued economic rebalancing efforts and toughening environmental regulations. Real-estate stimulus and a strong world economy boosted steel demand in the country during first-half 2018. Ongoing trade tensions with the United States and a slowing global economy pose as downside risks for China, per the WSA. The trade body expects Chinese steel demand to rise 6% this year and remain flat year over year in 2019.
Steel Stocks to Watch For
A couple of stocks currently worth considering in the steel space are Schnitzer Steel Industries, Inc. and POSCO. While Schnitzer Steel carries a Zacks Rank #1 (Strong Buy), POSCO is a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Schnitzer Steel has delivered positive earnings surprise in three of the trailing four quarters with an average beat of 29.5%. Earnings estimates for the current fiscal year have been revised 0.8% upward over the last 60 days.
POSCO has an expected earnings growth of 20.7% for 2018. Earnings estimates for the current year have been revised 7.3% upward over the last 60 days.
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