Global crude steel production rose in July despite a production slump at top producer China as Beijing tightened production cut measures to clean up the environment. Production increased in other major steel-producing countries during the month, with the United States and Japan posting the largest increases.
According to the latest report by the World Steel Association (WSA), crude steel production for 64 reporting nations rose 3.3% year-on-year to 161.7 million tons (Mt) in July. Production increased in most regions during the month under review.
China is slipping due to production restrictions
Crude steel production from China declined during the month due to government efforts to control production to reduce CO2 emissions. According to the WSA, production in China, which accounts for more than half of global steel production, fell by 8.4% to 86.8 million t in July compared to the previous year.
Beijing plans to reduce steel production this year from the record level of 2020. The production restrictions this year are aimed at reducing air pollution and lowering the cost of raw materials including iron ore. China has been urging steel mills in the country since June to introduce production and capacity restrictions in order to comply with standards to reduce CO2 emissions. The steel sector is one of the largest emitters of CO2 in China, accounting for around 15% of national CO2 emissions.
China’s steel production exceeded 1 billion tons in 2020 after production ramped up due to a strong recovery in domestic demand, fueled by government investments in real estate and infrastructure. The country’s production reached a record high of 99.5 million t in May 2021 due to strong domestic demand and healthy profit margins in the mills, before falling to 93.9 million t in June. In the first half of 2021, production increased by 11.8% year-on-year to 563.3 million t per WSA.
Production restrictions are expected to keep China’s steel production levels under control in the coming months. Production is also likely to be constrained by an expected slowdown in steel demand in the country, partly due to a slowdown in the construction sector.
How did other big producers fare in July?
Among the other large Asian producers, India, the second largest producer, recorded a production increase of 13.3% to 9.8 million t in July. Steel demand is increasing in the country on a revival in economic activity as state governments lifted lockdowns and restrictions to contain the rapid spread of the virus amid the deadly second wave.
Production in Japan rose by 32.5% to 8 million t in the month under review. Production rose for the fifth straight month as the country’s steelmakers see industrial demand rebound from the pandemic-induced slump. Crude steel production in South Korea also rose by 10.8% to 6.1 Mt. In Asia and Oceania, consolidated production fell by 2.5% to 116.4 Mt.
In North America, crude steel production rose by 37.9% in July to 7.5 million t in the USA. The pandemic-induced destruction of demand forced US steel mills to cut production and idle, with capacity utilization falling to a multi-year low in the first half of 2020. However, demand has recovered with the resumption of operations in the major steel consuming sectors. to an increase in capacity utilization and domestic steel production. US capacity utilization exceeded the important 80 percent mark in May 2021 for the first time since the beginning of the pandemic in March 2020 and is currently hovering above it. Total production in North America rose by 36% to around 10.2 million t.
In the European Union (EU), production from Germany, the largest producer in the region, rose by 24.7% to 3 million t. Total production in the EU rose by 30.3% to around 13 million t.
Production in the Middle East rose by 9.2% to 3.6 million t in July. Iran, the largest producer in the region, recorded an increase of 9% to 2.6 million t. Africa recorded an increase of 36.9% to 1.3 million t.
Among other notable producers, production from Turkey rose by 2.5% to 3.2 million t. Production from Brazil, the largest producer in South America, rose by 14.5% to 3 million t in July.
Steel industry is booming due to rising prices and demand
The steel industry is currently booming, having been rocked by the aftermath of the pandemic last year, thanks to a sharp recovery in demand and record-high steel prices.
The destruction of demand caused by the coronavirus largely devastated the steel industry in the first half of last year. However, a lot of catching up to do and skyrocketing steel prices have upset the industry. Steel demand is on the up with the resumption of operations in key sectors such as automotive, construction and engineering after lockdowns and restrictions around the world were eased. Demand in construction and manufacturing remains robust.
Steel prices also saw an unprecedented spike this year, supported by strong underlying supply and demand fundamentals. US steel prices are suffering from rising demand, tight supply, higher raw material costs and low inventory levels in the steel supply chain.
The benchmark prices for hot-rolled coils (“HRC”) have more than quadrupled from the August 2020 lows. HRC prices have surged above the $ 1,900 per short ton mark as the upward momentum continues. A major reason for the rise in US steel prices is the imbalance between supply and demand. Higher prices are likely to act as a catalyst and boost steel companies’ margins by 2021.
Steel stocks worth a look
A couple of stocks that are worth looking into the steel space right now are ArcelorMittal MT, Nucor Corporation NUE, United States Steel Corporation X, Olympic Steel, Inc. ZEUS and Schnitzer Steel Industry, Inc. NICE, everyone with a Zacks Rank # 1 (Strong Buy). You can see the full list of current Zacks # 1 Rank stocks here.
ArcelorMittal expects an earnings growth rate of 1,731.2% for the current year. The Zacks consensus estimate for the company’s current year has been revised up 53.4% over the past 60 days. The stock also recovered around 181% over a year.
Nucor expects a profit growth rate of 489.2% for the current year. The consensus estimate for the current year has been revised upwards by 33.8% in the last 60 days. Shares are up around 171% over the past year.
US Steel expects an earnings growth rate of 349.3% for the current year. The Zacks Consensus Estimate for the current year has been revised upwards by 21.5% in the last 60 days. The share also rose by around 254% in the past year.
Olympic Steel expects an earnings growth rate of 2,362.2% for the current year. The consensus estimate for the current year has been revised upwards by 72.2% in the last 60 days. The share also rose by around 162% in the past year.
Schnitzer Steel expects earnings growth of 1,253.5% for the current financial year. The consensus estimate for the current fiscal year has been revised upwards by 8.8% in the last 60 days. The stock is up around 153% in a year.
Time to invest in legal marijuana
If you’re looking for big wins, there’s no better time to jump into a fledgling industry that is set to skyrocket from $ 17.7 billion in 2019 to an estimated $ 73.6 billion by 2027.
After a neat cleanup of 6 polls in 5 states, cannabis is now legal in 36 states and DC is expected state legalization soon, and that could be an even bigger gold mine for investors. Even before the latest wave of legalization, Zacks Investment Research recommended pot stocks that shot up to + 285.9%.
You are invited to stop by Zacks’ marijuana moneymaker: A guide for investors. It offers an up-to-date watch list of pot stocks and ETFs with exceptional growth potential.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.