Steel Industry Losing Momentum as Prices Retreat
The steel industry rebounded strongly last year after the pandemic-led stupor, thanks to solid pent-up demand and a rally in steel prices to historic highs. The resumption of operations across major steel-consuming sectors such as construction and automotive, following the easing of lockdowns and restrictions globally, led to an uptick in steel demand.
Steel prices catapulted to all-time highs in 2021 on solid demand, higher raw material costs, tight supply and low steel supply-chain inventories globally. Notably, U.S. steel prices skyrocketed in 2021 on supply tightness and robust demand. The benchmark hot-rolled coil ("HRC") prices hit a record high of $1,960 per short ton in late September 2021, according to S&P Global Platts.
However, since October, HRC prices lost steam after peaking in September 2021, pulled down by stabilization of demand, improved supply conditions and higher steel imports. Nevertheless, since Russia invaded Ukraine, steel prices significantly rebounded on supply worries and a spike in lead times.
U.S. HRC prices shot up to above $1,400 per short ton in April 2022 after slumping to nearly $1,000 per short ton at the beginning of March 2022. Steel prices also witnessed a significant rally in Europe as the war threatened supplies from the two major producing nations.
Both Russia and Ukraine are key producers and suppliers of steel and steel-making raw materials, including coking coal and pig iron. The ongoing conflict led to a spike in steel input costs due to the disruptions in the supply chains.
However, after surging to nearly $1,500 per short ton around mid-April, the rally in HRC prices has stalled as prices have witnessed a downward correction, currently hovering around $1,300 per short ton. The downward drift reflects shorter lead times and a slowdown in demand.
Mills are also negotiating lower prices. Prices have also witnessed a correction worldwide over the recent weeks as a slowdown in China — due to new lockdowns — has dwindled demand for steel. These factors are likely to keep steel prices under pressure over the near term.
Steel Stocks Worth a Look
A few stocks currently worth considering in the steel space are Nucor Corp., ArcelorMittal S.A., Olympic Steel, Inc., Commercial Metals Co. and TimkenSteel Corp.
Nucor sports a Zacks Rank #1 (Strong Buy). It has a projected earnings growth rate of 17.4% for the current year. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for NUE's current-year earnings has been revised 37% upward over the last 60 days. Nucor has a trailing four-quarter earnings surprise of roughly 2.2%, on average. Its shares are up around 15% over the past six months.
ArcelorMittal sports a Zacks Rank #1. The consensus estimate for MT's current-year earnings has been revised 30.3% upward over the last 60 days.
ArcelorMittal has surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 17.8%. MT shares have gained around 12% over the past six months.
Olympic Steel carries a Zacks Rank #1. The consensus estimate for ZEUS's current-year earnings has been revised 109% upward over the last 60 days.
Olympic Steel has surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average being 44.9%. ZEUS shares have surged around 65% over the past six months.
Commercial Metals carries a Zacks Rank #2 (Buy) and has an expected earnings growth rate of 147.9% for the current fiscal year. The consensus estimate for CMC's current fiscal-year earnings has been revised 13.7% upward over the last 60 days.
Commercial Metals beat the Zacks Consensus Estimate for earnings in three of the last four quarters while missing once. It has a trailing four-quarter earnings surprise of roughly 16%, on average. CMC has gained around 22% over the past six months.
TimkenSteel carries a Zacks Rank #2 and has a projected earnings growth rate of 29.3% for the current year. The Zacks Consensus Estimate for TMST's current-year earnings has been revised 16.9% upward over the last 60 days.
TimkenSteel beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 39.8%. TMST shares have shot up around 52% over the past six months.