Global Steel Output Rises as China Mills Roar Post Winter Cuts

Global crude steel production expanded in April as steel mills in China -- the world's biggest steel producer -- ramped up production following the end of the winter output cuts that were aimed at cleaning up the environment. Higher output from India and the United States also supported the production growth.

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 went up 4.1% year over year for the reported month to 148.3 million tons (Mt).

Chinese Steel Mills Step Up Output

Production from China, which accounts for around half of the global steel output, spiked 4.8% year over year to a new record high of 76.7 Mt in April as steel mills in the country beefed up output after the four-month production restriction to curb pollution during the winter months was lifted in March 2018.

Chinese steel mills are stepping up production, driven by higher profits. The spike in output came despite Beijing's ongoing efforts to reduce the country's massive excess steel capacity and streamline its burgeoning steel sector. The lifting of the capacity restrictions has triggered fears of renewed oversupply.

Meanwhile, cheap steel exports from China is still causing a problem. China's steel exports shot up roughly 15% on a monthly basis in April, the highest since August 2017, per data released by the General Administration of Customs. High levels of steel exports from the country amid weak domestic demand and surplus supply remain a concern.

How Other Key Producers Fared

Among other major Asian producers, India saw a 5.6% rise in production to 8.7 Mt in April. Steel mills in the country have been benefiting from higher domestic steel prices and increasing local demand.

Production in Japan slipped 0.4% to 8.7 Mt in the reported month. South Korea witnessed a 7.1% jump to 5.9 Mt. Consolidated output were up 4.2% to 103.5 Mt in Asia.

In North America, crude steel production rose 3.6% to 6.9 Mt in the United States. American steel mills are benefiting from higher domestic steel prices.

The trade tariffs imposed by the Trump administration are expected to boost production capacity of U.S. steel makers amid lower imports. The U.S. Department of Commerce had said that the trade actions are aimed at increasing domestic steel production to roughly 80% operating rate from its present 73% capacity.

On prospects of higher steel demand as a result of the U.S. trade measures, U.S. Steel Corp. X is restarting one of its Granite City Works blast furnaces and steelmaking facilities. Another U.S. steel major, Nucor Corp. NUE also investing $240 million to build a rebar micro mill in Florida.

While there are still uncertainties surrounding exemptions of countries from the Trump tariff orders, there is no denying the fact that the trade actions have instilled optimism in the long-struggling American steel industry.

Meanwhile, output in Canada shot up 13.8% to around 1.2 Mt in April. Overall production in North America was up 6.4% to roughly 9.9 Mt.

In the Europe Union, production from Germany, the biggest producer in the region, fell 1.7% to 3.8 Mt. Output went up 3.7% in Italy to 2.1 Mt while climbing 10.7% to 1.4 Mt in France. Spain saw a 7.5% jump to 1.3 Mt. Total output rose 3.4% in the European Union to 14.9 Mt.

Output in the Middle East climbed 8.6% to 2.9 Mt with Iran, the top producer in the region, seeing a 12.4% rise to 1.9 Mt. Africa recorded a 3.8% gain to 1.1 Mt in the reported month.

Among other notable producers, production from Turkey was down 3.1% to 2.9 Mt. Output from Brazil, the largest producer in South America, ticked up 1.9% to 2.9 Mt.

Crude steel capacity utilization ratio for the reporting countries was 76.9% in April, up from 74.5% recorded both in the previous month and a year ago.

Steel Sector Gaining Momentum

The steel industry has staged a recovery after being out of favor for long. The industry's upturn has been supported by strong economic momentum in advanced and developing economies and sustained healthy demand in automobile and construction sectors.

While the overall demand fundamentals for steel is improving, the industry is still challenged by sustained overcapacity. The global steel industry continues to reel under the effects of excess capacity -- the biggest obstacle to persistent growth and profitability.

The Zacks Steel Producers industry has outperformed the broader market in a year's time. The industry saw a rise of around 31% in this period, higher than the S&P 500's corresponding gain of around 12.6%.

Demand outlook for steel is encouraging as the WSA sees global steel demand to expand 1.8% in 2018 as favorable global economic scenario, a rebound in commodity prices and strong investment will drive steel demand in both developed and developing economies.

Per the WSA, the outlook for steel demand in the United States is strong, backed by strong investment and consumption triggered by rising income and low interest rates. In the Eurozone, broadening recovery across countries, robust domestic demand, resumption in investment as well as pickup in non-residential construction and strong manufacturing activities will support steel demand.

Steel Stocks to Consider

A few stocks worth considering in the steel space are Ternium S.A. TX , Grupo Simec, S.A.B. de C.V. SIM , ArcelorMittal MT and Universal Stainless & Alloy Products, Inc. USAP . While Ternium, Grupo Simec and ArcelorMittal sport a Zacks Rank #1 (Strong Buy), Universal Stainless carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Ternium has an expected earnings growth of 35.9% for 2018. Earnings estimates for the current year have been revised 74.6% upward over the last 60 days. The stock has also gained roughly 38% over a year.

Grupo Simec has an expected earnings growth of 160.5% for 2018. Earnings estimates for the current year have been revised 39.4% upward over the last 60 days.

ArcelorMittal's shares have gained roughly 41% over a year. Earnings estimates for the current year have been revised 11.3% upward over the last 60 days.

Universal Stainless has gained roughly 33% over the past year. Earnings estimates for the current year have been revised 6.7% upward over the last 60 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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