The Zacks Steel Producers industry posted a strong recovery after feeling the brunt of the recovery in demand from key steel consuming industries and favorable steel prices. Healthy demand for steel in key markets, including construction and automotive, is a tailwind for the industry. Still high steel prices, despite the recent pullback, should also improve the profitability of industry participants. Ternium SA TX, Commercial Metals Company CMC, TimkenSteel Corporation TMST and Olympic Steel, Inc. ZEUS is ready to capitalize on these trends.
Industry Zacks Steel Producers serves a wide range of end-use industries such as automotive, construction, home appliances, containers, packaging, industrial equipment, mining equipment, transportation, and various steel products such as oil and gas. These products include hot-rolled and cold-rolled coils and sheets, hot-dip galvanized coils and sheets, steel bars, billets and blooms, wire rod, flat products, standard and line pipes, and mechanical tubular products. Steel is mainly produced in two ways – blast furnace and electric arc. It is considered the basis of production. The automotive and construction markets have historically been the largest consumers of steel. It is worth noting that the housing and construction industry is the largest consumer of steel, accounting for about half of the world’s total consumption.
Strong demand in key end-use markets: Steelmakers are well positioned to capitalize on rising demand in key steel end-use markets such as automotive, construction and engineering amid the coronavirus-driven economic slowdown. Demand for steel has risen since the third quarter of 2020 as major steel-consuming industries have reopened after lockdowns and restrictions eased around the world. The construction industry has rebounded after resuming projects halted due to supply chain disruptions and labor shortages. Order activity in the non-residential construction market remained strong, highlighting the underlying strength of the industry. Steelmakers are expected to benefit from higher orders in the auto market in the second half of 2022 as the semiconductor crisis eases and automakers ramp up production. Demand also improved in the energy sector, supported by higher oil and gas prices. Favorable trends in key markets augur well for steel demand. Steel prices remain strong, boosting margins, with steel prices rebounding strongly last year to record high inventories across the supply chain on the back of recovering demand in major markets, tight supply and low steel prices. Notably, U.S. steel prices surged to record highs last year after falling to multi-year lows triggered by the pandemic in August 2020. Indicative hot rolled coil (HRC) prices topped $1,900 per short ton in August 2021 and eventually peaked in September. But prices have lost momentum since October due to stable demand, improved supply conditions and rising steel imports. Steel prices rose sharply after Russia’s invasion of Ukraine and rose to almost $1,500 per short ton in April 2022 due to supply issues and a sharp increase in delivery times. However, prices have since retreated, partly reflecting shorter delivery times and recession fears. Despite the recent downward correction, hot-rolled coil prices are still above $1,000 per short ton and are likely to find support from healthy end-market demand. Still favorable prices are expected to boost steel producers’ profitability and cash flows in the short term. lead to economic recession. The downturn in the country’s real estate sector led to a slowdown in economic growth. The new lockdown measures have also had a major impact on the world’s second largest economy. The slowdown in manufacturing activity led to a reduction in demand for steel in China. Manufacturing has been hit by a resurgent virus that has hit demand for manufactured goods and supply chains. Beijing’s move to cool the property market, in part through credit tightening measures, has also raised concerns in the country’s steel industry.
The Zacks Steel Producers sector is part of the broader Zacks Basic Materials sector. It has a Zacks industry ranking of #95 and is in the top 38% of the 250+ Zacks industries. The group’s Zacks Industry Rank, which is essentially the average of the Zacks Ranks of all member stocks, indicates bright short-term prospects. Our research shows that the 50% of Zacks-rated industries outperform the lowest-rated 50% by more than 2 to 1. Before we look at a few stocks you might want to consider for your portfolio, let’s take a look at the stock’s recent performance. market and evaluation of this sector.
Over the past year, the Zacks Steel Producers industry has underperformed the Zacks S&P 500 Composite Index and the broader Zacks Base Materials industry. The sector lost 19.3% over the period, compared to a 9.2% decline for the S&P 500 and a 16% decline for the industry as a whole.
Based on the past 12-month enterprise value-to-EBITDA (EV/EBITDA) ratio (the multiple commonly used to value steel stocks), the sector is currently trading at 2.27x, below the S&P 500′s 12.55x and 5 .41x industry benchmark. . As shown in the chart below, over the past five years, industry trades have traded at a high of 11.62 times, a low of 2.19 times, and an average of 7.22 times.
Ternium: Luxembourg-based Ternium is rated No. 1 (Strong Buy) by the Zacks and is the leading producer of flat and long products in Latin America. It is expected to benefit from strong demand for steel products and higher real steel prices. Its shipments to Mexico likely benefited from healthy demand from industrial customers and a gradually improving automotive market. Supplies from Argentina are also expected to be supported by strong demand for construction materials. Ternium also benefits from the competitiveness of its facilities. Texas has also taken steps to increase liquidity and strengthen its financial position in the wake of the pandemic. You can see the full list of today’s Zacks #1 Rank stocks here. The Zacks consensus estimate for Ternium’s current year earnings has been revised up by 39.3% over the last 60 days. Texas has also outperformed the Zacks consensus estimate for earnings in each of the past four quarters by an average of 22.4%.
Commercial Metals: Texas Commercial Metals is ranked #1 by the Zacks and manufactures, processes and sells steel and metal products, related materials and services. This was supported by strong demand for steel, associated with an increase in the number of outstanding processing orders and a stable level of new construction work coming into the design phase. It continues to indicate strong demand for steel products in most end markets. A healthy construction market is likely to support strong demand for rebar and wire rod in North America. Steel sales in Europe are expected to remain robust due to growing demand in the construction and industrial markets. CMC also continues to benefit from its ongoing network optimization efforts. It also has solid liquidity and financial position and remains focused on debt reduction. Commercial Metals’ expected earnings growth rate for the current fiscal year is 31.5%. The Zacks consensus estimate for CMC’s current fiscal year earnings has been revised up by 42% over the last 60 days. The company has also outperformed the Zacks consensus estimate in three of the last four quarters. It unexpectedly returned an average gain of around 15.1% over this time period.
Olympic Steel: Ohio-based Olympic Steel, rated #1 by Zacks, is a leading steel service center specializing in direct sales of carbon steel, coated and stainless steel flat products, steel coils and plate, aluminum, tinplate and distribution . , metal-intensive branded products. ZEUS benefits from its strong liquidity position, action to reduce operating costs and the strength of its pipe and specialty metals business. It is expected that the improvement of the industrial market and the recovery of demand will support its volumes. The company’s strong balance sheet also allows it to invest in growth opportunities with higher returns. The Zacks consensus estimate for Olympic Steel Corp’s current year earnings has been revised up by 84.1% over the past 60 days. ZEUS has also outperformed the Zacks consensus estimate in three of the past four quarters. During this time, he unexpectedly returned an average of about 44.9%.
TimkenSteel: Ohio-based TimkenSteel manufactures alloy, carbon, and microalloy steels. The company has benefited from stronger industrial and energy demand and favorable pricing conditions, even as disruptions to the semiconductor supply chain have impacted shipments to mobile customers. The TMST industrial market continues to recover. Higher end-market demand and cost-cutting actions also helped its performance. The company is trying to improve its cost structure and production efficiency. TimkenSteel is #2 on the Zacks (Buy) list and is forecasting a 29.3% year-over-year earnings growth rate. Consensus earnings estimates for the current year have been revised upward by 9.2% over the past 60 days. TMST has outperformed the Zacks consensus estimate in each of the past four quarters by an average of 39.8%.
Post time: May-30-2023