U.S. Markets open in 5 hrs 59 mins

Zacks Industry Outlook Highlights: ArcelorMittal, Nucor, Steel Dynamics and Schnitzer Steel

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·10 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

For Immediate Release

Chicago, IL – June 14, 2021 – Today, Zacks Equity Research discusses Steel including ArcelorMittal MT, Nucor Corporation NUE, Steel Dynamics, Inc. STLD and Schnitzer Steel Industries, Inc. SCHN.

Link:  https://www.zacks.com/commentary/1689630/4-steel-producer-stocks-to-ride-the-booming-industry

The Zacks Steel Producers industry has staged an impressive comeback from the coronavirus-led slump, thanks to a strong revival in demand across major steel-consuming industries and a significant upswing in steel prices.

Surging demand for steel in the key end-markets such as automotive and construction represents a tailwind for the industry. Demand in China also remains strong on the back of government stimulus. Moreover, steel prices are shooting higher on soaring demand, higher input costs and supply constraints. ArcelorMittalNucorSteel Dynamics and Schnitzer Steel Industries are well placed to gain from these trends.

About the Industry

The Zacks Steel Producers industry serves a vast spectrum of end-use industries such as automotive, construction, appliance, container, packaging, industrial machinery, mining equipment, transportation, and oil and gas with various steel products. These products include hot-rolled and cold-rolled coils and sheets, hot-dipped and galvanized coils and sheets, reinforcing bars, billets and blooms, wire rods, strip mill plates, standard and line pipe, and mechanical tubing products.

Steel is primarily produced using two methods — Blast Furnace and Electric Arc Furnace. It is regarded as the backbone of the manufacturing industry. The automotive and construction markets have historically been the largest consumers of steel. Notably, the housing and construction sector is the biggest consumer of steel, accounting for roughly half of the world's total consumption.

What's Shaping the Future of the Steel Producers Industry?

Upturn in Major End-use Markets: Steel producers are set to gain from an upswing in demand across major steel end-use markets such as automotive and construction from the coronavirus-led downturn. The pandemic-induced demand destruction put a dent on the steel producers' industry for much of the first half of 2020.

However, steel demand started to pick up from the third quarter of 2020 on a resumption of operations across major steel-consuming sectors following the easing of lockdowns and restrictions across the world. The recovery in the automotive industry has accelerated following virus-led shutdowns on the back of strong customer demand.

The construction sector has also bounced back on the heels of a resumption of projects that were stalled due to supply chain disruptions and manpower shortage. In particular, the non-residential construction market remains resilient. As these major markets recover, the demand for steel is expected to go up.

Revival of China's Steel Demand: China's economy has roared back from the pandemic-triggered slump, aided by strict containment measures and government stimulus. An upswing in construction and manufacturing activities is driving demand for steel in China, the world's top consumer of the commodity.

Steel demand is being driven by government spending in infrastructure projects. Government stimulus measures will likely boost China's steel demand, especially in the property and infrastructure sectors.

Zooming Steel Prices: Steel prices are shooting up on the back of surging demand, supply shortages and higher raw material costs. Notably, U.S. steel prices have staged a strong recovery and hit record levels after cratering to the pandemic-induced multi-year lows in August 2020.

Benchmark hot-rolled coil (HRC) prices started to recover in September on U.S. steel mills' back-to-back price hike actions, tight supply and surging end-market demand. Notably, HRC prices have shot up more than three-fold from the August 2020 low. A key reason behind the spurt in U.S. steel prices is the demand-supply imbalance.

China's steel prices have also strengthened on the back of improving domestic demand. Moreover, global steel prices are moving up on higher demand in China. As such, higher prices are expected to drive profitability and cash flows of steel-producing companies going forward.
 

Overcapacity Remains a Worry: The steel producers industry remains hamstrung by the sustained oversupply of steel in the market, made worse by surging China production. China accounts for more than half of the global steel output and is a significant contributor to global steel excess capacity.

Rising steel production in China has led to high levels of finished steel inventories in the country. The steel glut has ignited concerns of China flooding the global markets with cheap steel exports. As such, China's steel overcapacity remains an overhang.

Zacks Industry Rank Indicates Upbeat Prospects

The Zacks Steel Producers industry is part of the broader Zacks Basic Materials Sector. It carries a Zacks Industry Rank #23, which places it at the top 9% of more than 250 Zacks industries.

The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock-market performance and valuation picture.

Industry Outperforms Sector and S&P 500

The Zacks Steel Producers industry has outperformed both the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.

The industry has rallied 152.1% over this period compared with the S&P 500's rise of 40.9% and the broader sector's increase of 57%.

Industry's Current Valuation

On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing steel stocks, the industry is currently trading at 8.83X, below the S&P 500's 17.32X, but above the sector's 8.73X.

Over the past five years, the industry has traded as high as 11.62X, as low as 4.83X and at the median of 7.73X.

4 Steel Producers Stocks to Keep a Close Eye On

ArcelorMittal: Luxembourg-based ArcelorMittal is the world's leading steel and mining company. It is witnessing a rebound in demand, especially in automotive, following the easing of lockdown measures.

The company also remains focused on maintaining a competitive cost advantage and strategically growing through high-return projects in high-growth markets. It is expanding its steel-making capacity and remains focused on shifting to high-added-value products. Its cost-reduction initiatives will also support profitability.

ArcelorMittal currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for the company's current-year earnings has been revised 45.2% upward over the last 60 days.

The company has also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 52.3%. The stock has also rallied roughly 54% over the past six months. You can see the complete list of today's Zacks #1 Rank stocks here.

Nucor: Charlotte, NC-based Nucor, carrying a Zacks Rank #1, makes steel and steel products with operating facilities in the United States, Canada and Mexico. The company is benefiting from strength in the non-residential construction market and a strong recovery in the automotive market. It is also seeing improved conditions in heavy equipment, agriculture and renewable energy markets.

Higher demand is supporting its shipments. Nucor should also gain from considerable market opportunities from its strategic investments in its most-significant growth projects. It remains committed to boost production capacity, which should drive profitable growth and strengthen its position as a low-cost producer.

Nucor has expected earnings growth of 259.9% for the current year. The consensus estimate for the current year has been revised 61.3% upward over the last 60 days. It has seen its shares shoot up around 91% over the past six months.

Steel Dynamics: Based in Indiana, Steel Dynamics is a leading steel producers and metals recycler in the United States, carrying a Zacks Rank #1. It is benefiting from momentum across the automotive and non-residential construction sectors. Higher prices aided by strong demand are also expected to drive the profitability of its steel operations. Steel Dynamics is also currently executing a number of projects that should add to capacity and boost profitability.

The company has expected earnings growth of 234.9% for the current year. The consensus estimate for the current year has been revised 59.8% upward over the last 60 days. The stock has also surged roughly 70% over the past six months.

Schnitzer Steel: Oregon-based Schnitzer, carrying a Zacks Rank #1, is a leading manufacturer of recycled metal products in North America. Its steel manufacturing operations produce finished steel products. Its productivity improvements and cost cost-reduction actions along with continued commercial initiatives are lending support to margins.

The company should also benefit from an improvement in ferrous and nonferrous markets, its debt reduction actions, and transition to the new One Schnitzer operating model which is designed at increasing its efficiency.

The consensus estimate for current-fiscal-year earnings has been revised 57.4% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in each of the trailing four quarters at an average of 78.5%. Moreover, the stock has rallied around 90% over the past six months.

+1,500% Growth: One of 2021's Most Exciting Investment Opportunities

In addition to the stocks you read about above, would you like to see Zacks' top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second.

Zacks has released a special report to help you capitalize on the Internet of Things's exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond.
 
Click here to download this report FREE >>

Join us on Facebook: https://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

https://www.zacks.com

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Steel Dynamics, Inc. (STLD) : Free Stock Analysis Report
 
ArcelorMittal (MT) : Free Stock Analysis Report
 
Nucor Corporation (NUE) : Free Stock Analysis Report
 
Schnitzer Steel Industries, Inc. (SCHN) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research