Global crude steel production expanded in October
as steel mills in China, the world's biggest steel producer,
churned out record monthly output. According to the latest
report from the World Steel Association ("WSA") â the international
trade body for the iron and steel industry â crude steel production
for 64 reporting nations spiked 5.8% year over year for the
reported month to 156.6 million tons (Mt).
China Chalks Up Record Production
Production from China, which accounts for around half of the global
steel output, surged 9.1% year over year to a new record high of
82.6 Mt in October, exceeding the previous peak of 81.2 Mt
registered in July.
Notwithstanding the ongoing U.S.-China trade tensions, Chinese
steel mills have been beefing up output to take advantage of strong
profit margins. The spike in output came despite Beijingâs ongoing
efforts to reduce the countryâs massive excess steel capacity and
streamline its burgeoning steel sector. Chinese crude steel output
rose 6.4% year over year to 782.46 million tons the first ten
months of 2018, according to China's National Bureau of Statistics
(âNBSâ).
Fears of oversupply of steel in the market triggered by a surge in
production in China to record highs in the recent months have
gripped the steel industry lately.
The ramp up of output in China amid sluggish domestic steel demand
has raised industry-wide concerns that a glut of Chinese steel will
put downward pressure on steel prices globally. Nevertheless,
production is likely to tighten in the coming months as China has
started implementing a four-month reduction in output aimed at
curbing pollution during the winter months.
How Other Key Producers Fared in October
Among other major Asian producers, India saw a 0.4% rise in
production to 8.8 Mt for the reported month. Indian steel mills
have been benefiting from strong domestic demand.
Output in Japan slipped 4.5% to 8.6 Mt in October as production was
hurt by technical issues across certain mills and lingering impacts
of natural disasters. Production in South Korea went up 3.5% to 6.2
Mt. Consolidated output were up 7.6% to 110.5 Mt in Asia.
In North America, crude steel production shot up 10.5% to 7.6 Mt in
the United States. American steel mills are benefiting from higher
domestic steel prices courtesy of the Trump administrationâs trade
actions to curb imports. Higher steel prices are driving the
margins of U.S. steel makers including United States Steel Corp. X,
Nucor Corp. NUE and Steel Dynamics, Inc. STLD.
The tariffs are also boosting production capacity of U.S. steel
makers amid lower imports. U.S. steel industry capacity utilization
is currently hovering above the 80% mark (the minimum rate required
for the long-term viability of the industry), reflecting the impact
of the tariffs.
Meanwhile, output in Canada fell 14.6% to around 1.2 Mt in October.
Overall production in North America was up 5.5% to roughly 10.5 Mt.
In the Europe Union, production from Germany, the biggest producer
in the region, edged up 1.4% to 3.6 Mt. Output rose 1.1% in Italy
to 2.3 Mt while declining 3.5% to 1.3 Mt in France. Spain saw a
7.4% decline to 1.3 Mt. Total output inched down 0.8% in the
European Union to 14.8 Mt.
Output in the Middle East shot up 9.6% to 3.1 Mt with Iran, the top
producer in the region, seeing a 10.6% jump to 2.1 Mt. Africa
recorded a 7.8% gain to 1.3 Mt in the reported month.
Among other notable producers, production from Turkey was down 4.3%
to 3.2 Mt. Output from Brazil, the largest producer in South
America, increased 3% to 3.1 Mt.
China Slowdown Weigh on Steel Sector
A slowdown in steel demand in China, the worldâs top consumer, amid
a cooling Chinese economy spells problems for the steel industry.
Signs of weakness across the countryâs major steel end-use markets
â construction and automotive â as reflected by a slowdown in
real-estate investment growth and declining car sales have clouded
steel demand outlook.
Chinaâs automobile sales dropped 11.7% to 2.38 million units in
October, the fourth straight month of year-on-year decline, per the
China Association of Automobile Manufacturers. Moreover, Chinaâs
property investment growth hit 10-month low of 7.7% in October,
slowing from an 8.9% expansion in September, according to
Reuters.
Chinaâs 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 escalating trade tensions between Beijing and Washington.
International Monetary Fund (IMF), last month, cut China's GDP
forecast for 2019 to 6.2% from its earlier view of 6.4% citing the
ongoing trade war.
The WSA envisions steel demand in China to decelerate towards the
end of 2018 and 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.
The Zacks Steel Producers industry currently carries a Zacks
Industry Rank #167, which places it at the bottom 35% of more than
250 Zacks industries. Our back-testing shows that the top 50% of
the Zacks ranked industries outperforms the bottom 50% by a factor
of more than 2 to 1.
Steel Stocks to Watch for
A few stocks worth considering in the steel space are EVRAZ plc
EVRZF, Gerdau S.A. GGB and POSCO PKX. While EVRAZ sports a Zacks
Rank #1 (Strong Buy), Gerdau and POSCO carry a Zacks Rank #2 (Buy).
You can see the complete list of todayâs Zacks #1 Rank
stocks here.
EVRAZ has an expected earnings growth of 195.8%
for 2018. Earnings estimates for the current year have been revised
4.4% upward over the last 60 days.
Gerdau has an expected earnings growth of 366.7% for 2018. Earnings
estimates for the current year have been revised 7.7% 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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