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Zacks Industry Outlook Highlights: Nucor, Commercial Metals, ArcelorMittal and Steel Dynamics

Zacks Equity Research
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For Immediate Release

Chicago, IL – May 9, 2018 – Today, Zacks Equity Research discusses the Steel, including Nucor Corp. NUE, Commercial Metals Company CMC, ArcelorMittal MT and Steel Dynamics Inc. STLD.

Industry: Steel, Part 2

Link: https://www.zacks.com/commentary/161409/heres-how-the-steel-industrys-getting-hot

Steel is utilized in every important industry ranging from energy, construction, automotive and transportation, infrastructure, packaging and machinery. A favorable global economic scenario, commodity prices and perked up investment is expected to buoy steel demand in both developed and developing economies.

Consequently, there are plenty of reasons to be optimistic about the broader steel industry, both in the short and long term. Here, we discuss some of the key reasons and what investors in the steel sector can look forward to in the coming months and years.

The “Trump” Effect

After being in the dumps for a major part of 2016, steel stocks got a big boost following President Trump’s win that November on expectations of significant infrastructure spending. The president’s call for such spending is expected to lead to an increase in steel demand as it is a key component in many infrastructure products. Trump’s “big” spending plans have thus painted a bullish picture for steel companies.

President Trump, on Mar 8, signed proclamations imposing steep tariffs on steel and aluminum imports in a major move to protect the domestic producers of these metals, rebuild the long-struggling U.S. steel and aluminum industries as well as safeguard American jobs.

Steel Import Drops: Respite to Beleaguered U.S. Players

The tariffs are welcome news for American steel makers as it will lead to lower imports into the United States, which would in turn boost demand for American steel. This will provide the domestic players with more pricing power.

Per the American Iron and Steel Institute (“AISI”), an association of North American steel makers, total and finished steel imports have dipped 3.0% and 1.7%, respectively, in the first three months of 2018 compared with the prior-year period. For 2018, annualized total and finished steel imports is projected to decline 8.8% and 7.6%, respectively, from the prior year. Finished steel import market share was an estimated 26% in March and is estimated at 25% for the year.

On prospects of higher steel demand as a result of the latest U.S. trade measures, United States Steel Corp. (X) stated recently that it will restart one of its Granite City Works blast furnaces and steelmaking facilities. The company expects to call back around 500 employees starting this month. Both the blast furnaces of Granite City Works and its steelmaking facilities were idled in December 2015 in response to challenging market conditions, including unfairly traded imports.

Another U.S. steel major, Nucor Corp. also recently announced that it will build a rebar micro mill in Florida. This $240-million investment will be Nucor’s second rebar micro mill.

Moreover, the tariffs are anticipated to boost production capacity of domestic steel makers amid lower imports. The U.S. Department of Commerce earlier stated that the trade actions are aimed at increasing domestic steel production to roughly 80% operating rate from its present capacity of 73%. This is the minimum rate needed for the long-term viability of the industry.

Construction Sector to Remain Key Demand Driver

The homebuilding market remains a pillar of strength for the economy, as well as the steel industry. The housing and construction sector is the largest consumer of steel, accounting for almost half of the total consumption. Positives like an improving economy, healthy job growth, low interest rates, positive consumer confidence and a tight supply situation raise optimism about the sector’s performance.

The American Institute of Architects (“AIA”) anticipates spending in the non-residential building sector to advance around 4% in 2018 and continue at that pace of growth through 2019. The recently enacted tax reform as well as Trump’s promised infrastructure package will boost demand in the sector. Nucor and Commercial Metals Company are the leading steel suppliers to the non-residential construction sector.

Over the long haul, as the urban population increases worldwide, the requirement for steel to build skyscrapers and public transportation infrastructure should see an uptrend as well. Emerging economies will continue to be major catalysts, owing to the huge amount of steel needed for urbanization and industrialization. Hence, demand for steel is anticipated to remain robust in the years to come. Companies like United States Steel, ArcelorMittal, Nucor and Steel Dynamics Inc. would gain from momentum in construction.

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Steel Dynamics, Inc. (STLD) : Free Stock Analysis Report
 
ArcelorMittal (MT) : Free Stock Analysis Report
 
Nucor Corporation (NUE) : Free Stock Analysis Report
 
Commercial Metals Company (CMC) : Free Stock Analysis Report
 
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