CHICAGO, March 29, 2012 /PRNewswire/ -- Today, Zacks Equity Research discusses the Steel Industry, including ArcelorMittal (NYSE: MT), AK Steel Holding Corporation (NYSE: AKS), Nucor Corporation (NYSE: NUE) and United States Steel Corp (NYSE: X).
A synopsis of today's Industry Outlook is presented below. The full article can be read at
Reflecting on the 2011 results of the steel companies in our coverage -- ArcelorMittal (NYSE: MT), AK Steel Holding Corporation (NYSE: AKS) and Nucor Corporation (NYSE: NUE) -- we find revenues increasing across the board due to higher average steel prices and increase in shipments.
ArcelorMittal, the world's largest steel producing company, belched out 91.9 Mt in fiscal 2011, representing 6% of the world's steel output. ArcelorMittal's 2011 sales increased 10% to $94 billion while AK Steel's sales climbed 8% to $6.5 billion. Nucor recorded sales increase of 21% to reach $20 billion.
In terms of profitability, Nucor stood tall with its fiscal 2011 EPS of $2.45, almost six fold the 42 cents earned in 2010. ArcelorMittal's EPS in fiscal 2011 plummeted 31% to $1.19. AK Steel reversed its year-ago loss to earn 9 cents (excluding special items) in 2011. United States Steel Corp (NYSE: X), though still in red, narrowed its fiscal 2011 loss per share to 47 cents from the year-ago loss of $3.36.
The steel companies expect volumes to improve in 2012 on recovering demand from improving end-markets, backed by a recuperating global economy. They expect operating results to significantly improve from 2011 levels mainly driven by improved average realized prices and higher shipments. Steel consumption is expected to grow in the automotive, transportation, energy, industrial and the agricultural sectors.
However, the European debt crisis and its potential global impact remain an overhang on the steel industry. ArcelorMittal has idled 5 of its 25 blast furnaces in Europe. The company will continue to align its steel growth projects to match demand situations. Furthermore, the company's focus on its mining business given its more attractive returns has resulted in some planned steel investments being deferred.
Currently, Nucor, United Steel and AK Steel retain a Zacks #3 Rank (Hold) for the short term (1 to 3 months) that corresponds with our Neutral recommendations in the long term. ArcelorMittal retains a Zacks #4 Rank (Sell) and we have recently downgraded our long-term recommendation from Neutral to Underperform.
Industry Capacity & Demand/Consumption Dynamics
World crude steel capacity utilization ratio inched up 0.5 percentage point to 71.3% in January 2012 from December 2011 but dipped 9.6 percentage points from January 2011. U.S. capacity utilization ratio in January 2012 was a forty-month record high at 77.6%, an increase from the December 2011 utilization rate of 75.2%. Though the capacity utilization rate has increased significantly from the April 2009 low level, it still remains below the historical averages.
In the United States, apparent consumption, which is used to measure domestic demand for steel, stood at 8.6 Mt in January 2012, up 15.6% year over year and 11.6% from the sequentially preceding month. When we compare it with the trough experienced in April 2009, demand was up a considerable 86.1%.Price Trends Seen So Far Steel prices are generally volatile, in line with the highly cyclical nature of the global steel industry. Following an extended period of rising prices, steel prices plunged during the financial and economic crisis of 2008 due to the sudden drop in demand. This was further intensified by massive industry destocking as customers cleared their steel inventories. Steel producers in their turn suffered the worst casualties, recording lower revenues and margins, and even had to write down finished steel and raw material inventories.
Steel prices saw a recovery in late 2009 that followed into 2010 but remained below the pre-financial crisis level. In 2011, steel prices remained volatile, increasing in the first half on the back of strong demand, higher raw material costs, improved activity for the automotive, appliance and other industrial segments though construction remained relatively weak in many regions.
Prices fell in the second half as demand decreased due to uncertainty surrounding the Euro-zone sovereign debt crisis. The fourth quarter particularly exhibited weakness due to a sharp drop in iron ore prices in October and as customers renewed destocking considering the uncertain economic environment.
So far in 2012, the steel industry is seeing some price hikes. We feel that the recovery in pricing momentum will be driven by a reviving economy, no further crisis in the Euro-zone and a rebound in construction activity in the developing countries, in particular China, India and South Korea.
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