Zacks Industry Outlook Highlights: Nucor, United States Steel, AK Steel Holding And Steel Dynamics

For Immediate Release

Chicago, IL – Dec 18, 2017 – Today, Zacks Equity Research discusses the Industry: Steel, Part 2, including Nucor Corp. (NYSE:NUE) , United States Steel Corp. (NYSE:X) , AK Steel Holding Corp. (NYSE:AKS) and Steel Dynamics Inc. (NASDAQ:STLD) .

Industry: Steel, Part 2

Link: https://www.zacks.com/commentary/140189/steel-industry-stock-outlook---december-2017

Steel is not only the world's most important engineering and construction material, but is also utilized in countless products given the metal's combination of high strength and a relatively low production cost. Consequently, it is considered a crucial element of economic growth.

Both advanced and developing economies are exhibiting stronger economic momentum this year, which bodes well for the steel industry. Further, President Trump’s plans for colossal infrastructure spending — one of his key campaign promises — will be a catalyst for American steel makers as it is likely to have a beneficial effect on the U.S. steel industry given the expected increase in steel consumption.

So it is safe to say a lot of hopes rest on the President. Notably, Trump’s aggressive trade policies are also anticipated to provide more protection to the U.S. steel industry. Moreover, the industry continues to benefit from the sustained healthy demand in the automobile and construction sectors.

Steel Production Expands at a Solid Pace

Per the World Steel Association’s (“WSA”) data available til October 2017, global steel production surged a healthy 5.6% to 1410 metric tons (Mt) on a year-over-year basis propelled by higher output across all regions. Steel production in Asia was at 975 Mt in 10 month-period, an increase of 6.0% year over year. North America’s crude steel production registered a 4.1% rise to 96.5 Mt while the EU produced 140.8 Mt of crude steel, rising 3.7% year over year.

Steel production in the C.I.S. was at 85.2 Mt, a 0.4% rise year over year. China, the world’s largest steel maker which accounts for around half of the global production, delivered a 6.1% rise in steel production during the first 10 months of the year.

Concerns about China’s slowdown had dealt a massive blow to the global steel industry over the last couple years, with overcapacity and lower steel prices denting the margins of Chinese steel producers. Efforts have been undertaken to reduce overcapacity and upgrade production in China's steel industry to negate these factors.

To mitigate the impact of rebalancing, the Chinese government issued a number of mini stimulus measures. This led to a short-term boom in infrastructure investment and the housing market, working in favor of the steel industry. Consequently, China’s steel demand grew 1.3% in 2016 and the industry continues to witness strong steel demand so far in 2017.

The country’s steel exports slumped 31% for the first 11 months of 2017, per data released by the General Administration of Customs. Notably, November marks the 15th consecutive month in which Chinese steel exports have registered a yearly decline. Positive rulings in trade cases (resulting in levy of heavy tariffs) against China is contributing to a decline in Chinese steel exports.

Further, China’s actions to reduce excess steel supply are also expected to lend support to steel prices in 2017. The world’s largest steel producer has pledged to cut steel production capacity by around 50 million Mt in 2017 to tackle pollution and curb excess supply.

Cheap Imports Continue to Hinder Growth

U.S. steel mills remain impacted by depressed capacity utilization and a surge of unfairly traded imports. The domestic market continues to be inundated with cheap imports from overseas producers, especially China. According to a recent report from the American Iron and Steel Institute (AISI), total and finished steel imports for the first 10 months of 2017 shot up 19.4% and 15.4% year over year, respectively. Year to date, finished steel import market share is estimated at 28%.

American steel makers including Nucor Corp., United States Steel Corp., AK Steel Holding Corp., Steel Dynamics Inc. and ArcelorMittal USA have been bearing the brunt of high levels of cheap imports. This has resulted in declining orders, idling of mills and layoffs across the board. Consequently, U.S. steel makers continue to actively press the U.S. regulators to stop unfair trade practices and enforce new trade laws to rescue the crisis-hit American steel industry.

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