Global Steel July Production Up Even as China Output Drops

Global crude steel production rose in July despite a slump in output from top producer China as Beijing stepped up measures to cut production aimed at cleaning up the environment.  Production increased across other major steel-producing countries for the reported month with the United States and Japan seeing the biggest gains.

According to the latest World Steel Association (“WSA”) report, crude steel production for 64 reporting nations expanded 3.3% year over year to 161.7 million tons (Mt) in July. Production rose across most regions in the reported month.

China Output Slips on Production Restrictions

Crude steel production from China fell in the reported month on government’s efforts to control production to reduce carbon emissions. Per the WSA, production in China, which accounts for more than half of the global steel output, went down 8.4% year over year to 86.8 Mt in July.

Beijing is looking to reduce steel output this year from record levels witnessed in 2020. The production restrictions this year are aimed at reducing air pollution and controlling costs of raw materials including iron ore. China has been pushing steel mills in the country since June to implement output and capacity curbs to comply with the norms to cut carbon emissions. The steel sector is among the biggest sources of carbon emissions in China, accounting for roughly 15% of national carbon emissions.

China’s steel output topped 1 billion tons in 2020 following a production ramp-up on a strong rebound in domestic demand, driven by government investment in property and infrastructure. Output from the country hit a record high of 99.5 Mt in May 2021 on the back of firm domestic demand and healthy profit margins at mills, before retreating to 93.9 Mt in June. Production climbed 11.8% year over year to 563.3 Mt in the first half of 2021, per WSA.

Production curbs are expected to keep China’s steel output levels under check in the coming months. Output is also likely to be capped by an expected softening of steel demand in the country, partly resulting from a slowdown in the construction sector.

How Other Major Producers Fared in July?

Among the other major Asian producers, India — the second-largest producer — saw a 13.3% rise in production to 9.8 Mt in July. Steel demand is picking up in the country on a revival in economic activities with the lifting of lockdowns and restrictions imposed by state governments to stem the rapid spread of the virus amid the deadly second wave.

Production in Japan jumped 32.5% to 8 Mt in the reported month. Output rose for the fifth straight month as steel makers in the country are seeing a rebound in industrial demand from the pandemic-led slump. Crude steel output in South Korea also rose 10.8% to 6.1 Mt. Consolidated output went down 2.5% to 116.4 Mt in Asia and Oceania.

In North America, crude steel production climbed 37.9% to 7.5 Mt in the United States in July. The pandemic-induced demand destruction forced U.S. steel mills to curtail production and idle operations with capacity utilization slumping to a multi-year lows during the first half of 2020. However, demand has rebounded with the resumption of operations across major steel-consuming sectors, leading to an uptick in capacity utilization and domestic steel production. U.S. capacity utilization rate broke above the important 80% level in May 2021 for the first time since the start of the pandemic in March 2020, and is currently hovering above that level. Overall production in North America jumped 36% to roughly 10.2 Mt.  

In the Europe Union (EU), production from Germany, the biggest producer in the region, climbed 24.7% to 3 Mt. Total output was up 30.3% in the EU to around 13 Mt.

Production in the Middle East rose 9.2% to 3.6 Mt in July. Iran, the top producer in the region, saw a 9% rise to 2.6 Mt. Africa recorded a 36.9% surge to 1.3 Mt.

Among other notable producers, output from Turkey increased 2.5% to 3.2 Mt. Output from Brazil, the largest producer in South America, went up 14.5% to 3 Mt in July.

Steel Industry Booming on Surging Prices, Demand

The steel industry is currently enjoying a boom after being rattled by the fallout from the pandemic last year, thanks to a strong revival in demand and record-high steel prices.

Coronavirus-induced demand destruction wreaked havoc on the steel industry for much of the first half of last year. However, strong pent-up demand and skyrocketing steel prices have pulled the industry out of its funk. Steel demand is on an upswing with the resumption of operations across major sectors such as automotive, construction and machinery following easing of lockdowns and restrictions across the word. Demand remains robust across construction and manufacturing sectors.

Steel prices have also witnessed an unprecedented surge this year underpinned by strong underlying supply and demand fundamentals. U.S. steel prices are on a tear on an upturn in demand, tight supply, higher raw material costs and low steel supply-chain inventories.

The benchmark hot-rolled coil (“HRC”) prices have shot up more than four-fold from the lows witnessed in August 2020. HRC prices have broken above the $1,900 per short ton level as the upward momentum continues. A prime reason behind the spurt in U.S. steel prices is the demand-supply imbalance. Higher prices are likely to act as a catalyst and drive margins of steel companies through the balance of 2021.

Steel Stocks Worth a Look

A few stocks currently worth a look in the steel space are ArcelorMittal MT, Nucor Corporation NUE, United States Steel Corporation X, Olympic Steel, Inc. ZEUS and Schnitzer Steel Industries, Inc. SCHN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ArcelorMittal has expected earnings growth rate of 1,731.2% for the current year. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 53.4% upward over the last 60 days. The stock has also rallied roughly 181% over a year.

Nucor has expected earnings growth rate of 489.2% for the current year. The consensus estimate for the current year has been revised 33.8% upward over the last 60 days. It has seen its shares surge around 171% over the past year.

U.S. Steel has expected earnings growth rate of 349.3% for the current year. The Zacks Consensus Estimate for the current year has been revised 21.5% upward over the last 60 days. The stock has also shot up roughly 254% over the past year.

Olympic Steel has expected earnings growth rate of 2,362.2% for the current year. The consensus estimate for the current year has been revised 72.2% upward over the last 60 days. The stock has also surged roughly 162% over the past year.

Schnitzer Steel has expected earnings growth rate of 1,253.5% for the current fiscal year. The consensus estimate for the current fiscal has been revised 8.8% upward over the last 60 days. The stock has also surged around 153% over a year.

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By Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

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