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Chicago, IL – November 26, 2021 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: TimkenSteel Corporation TMST, Commercial Metals Company CMC, Nucor Corporation NUE and Schnitzer Steel Industries, Inc. SCHN.

Here are highlights from Wednesday’s Analyst Blog:

Global Steel October Production Tumbles as China Output Curbs

Global crude steel production fell for the third straight month in October, dragged down by a slump in output from top producer China on government’s actions to cut production to clean up the environment and a slowdown in domestic steel demand. Production rose across India, the United States and Japan for the reported month with the United States racking up the biggest gain.

According to the latest World Steel Association (“WSA”) report, crude steel production for 64 reporting nations dropped 10.6% year over year to 145.7 million tons (Mt) in October. A decline in output across Asia and Oceania, CIS and the Middle East more than offset higher production across other regions in the reported month.

China Output Plummets on Environmental Push, Soft Demand

Crude steel production from China fell for the fourth consecutive month in October on Beijing’s aggressive measures to curb production in a bid to reach its carbon neutrality goal by 2060. Weak demand, a slump in domestic steel prices and power shortages also contributed to the decline.

Per the WSA, production in China, which accounts for nearly half of the global steel output, slumped 23.3% year over year to 71.6 Mt in October. Output is also down from 73.8 Mt in September. Production edged down 0.7% year over year to 877.1 Mt in the first ten months of 2021. China’s monthly steel output has been declining since July after hitting a record high of 99.5 Mt in May 2021.

China is aiming to keep 2021 steel output within last year’s record levels. Beijing has been pushing steel mills in the country since early July 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 has set a national goal to achieve peak carbon emissions for the steel sector by 2025.

Production cuts are expected to keep China’s steel output levels under check through the end of this year. Output is also likely to be capped by softer steel demand in the country, partly resulting from a slowdown in demand in the construction sector amid cold winter weather, and weaker profit margins at steel mills in China. Margins at steel mills have been hit by a sharp decline in steel prices amid falling demand.

Steel demand in China has softened since the second half of 2021 due to a slowdown in the country’s economy. China's GDP expanded 4.9% year over year in the third quarter of 2021, slowing from a 7.9% growth in the second quarter, per China's National Bureau of Statistics.

A slowdown in construction and manufacturing activities has led to the contraction of demand for steel in China. Manufacturing is being hurt by semiconductor shortages, supply-chain disruptions and power outages. Beijing’s move to take the heat out of its property market partly through credit tightening measures bodes ill for construction steel demand. The debt crisis at one of China top property developers, Evergrande, also increases the risk of a financial contagion in the country’s property sector.

How Other Major Producers Fared in October?

Among the other major Asian producers, India — the second-largest producer — saw a 2.4% rise in production to 9.8 Mt in October. Steel demand is picking up in India on a revival in economic activities with the lifting of lockdowns and restrictions imposed by state governments to blunt the rapid spread of the virus amid the deadly second wave. Government’s infrastructure push and focus on accelerating the rural economy bode well for steel demand in the country.

Production in Japan climbed 14.3% to 8.2 Mt in the reported month. Output rose for the eighth straight month as steel makers in the country are seeing a solid demand in the manufacturing sector. Crude steel output in South Korea slipped 1% to 5.8 Mt. Consolidated output went down 16.6% to 100.7 Mt in Asia and Oceania reflecting the sharp decline in China.

In North America, crude steel production jumped 20.5% to 7.5 Mt in the United States in October. Steel demand has rebounded in the Unites States with the resumption of operations, 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 last year, and remains close to the 85% level amid strong domestic demand. Overall production in North America went up 16.9% to roughly 10.2 Mt.  

In the Europe Union (EU), production from Germany, the biggest producer in the region, rose 7% to 3.7 Mt. Total output was up 6.4% in the EU to around 13.4 Mt. Steel prices in the region have gained some ground of late after coming under pressure since August 2021 as the semiconductor shortage hurt demand from car manufacturers. However, the spike in electricity costs is hurting steel producers in Europe, especially electric arc furnace producers, due to an increase in steelmaking costs.  

Production in the Middle East dropped 12.7% to 3.2 Mt in October. Iran, the top producer in the region, saw an 15.3% decline to 2.2 Mt. Africa logged a 24.1% surge to 1.4 Mt.

Among other notable producers, output from Turkey went up 8% to 3.5 Mt. Production from Brazil, the largest producer in South America, rose 10.4% to 3.2 Mt in October.

Steel Industry on Solid Footing

The steel industry has staged an impressive comeback after being hobbled by the fallout from the coronavirus pandemic last year, thanks to a strong revival in end-market demand and an upswing in steel prices.

The pandemic hurt demand for steel across major end-use markets for much of the first half of last year. However, the industry has rebounded strongly on solid pent-up demand and a rally in steel prices. The resumption of operations across major steel-consuming sectors following the easing of lockdowns and restrictions globally has led to an uptick in steel demand.

Steel prices have also witnessed an unprecedented surge this year on the back of an upturn in demand across key markets, tight supply conditions and low steel inventory throughout the supply chain. In particular, U.S. steel prices have hit record levels after cratering to the pandemic-induced multi-year lows in August last year. The imbalance between supply and demand has largely contributed to the strong run-up in U.S. steel prices.

The benchmark hot-rolled coil (“HRC”) prices plunged to a pandemic-led low of roughly $440 per short ton in August 2020. HRC prices started to recover from September 2020 and shot up more than four-fold from the August 2020 low to above $1,900 per short ton, eventually peaking in September 2021. However, prices have come under pressure since October, weighed down by weaker demand in automotive resulting from production cuts by carmakers in the wake of the ongoing semiconductor shortage. Prices fell below the $1,900 per short ton level earlier this month largely due to the automotive slowdown. Demand weakness in automotive is likely to continue as the chip shortages are unlikely to abate anytime soon.  

Despite the softness in automotive, steel demand in other sectors including construction remains healthy. HRC prices also remain elevated notwithstanding the recent declines, currently hovering near $1,800 per short ton. Solid overall demand coupled with supply constraints due to a number of mill outages and scheduled maintenance are likely to lend support to HRC prices through the remainder of this year, driving profit margins of steel companies in the final quarter of 2021.

Steel Stocks Worth A Look

A few stocks currently worth considering in the steel space are 

TimkenSteel

Commercial Metals Co

Nucor Corp and 

Schnitzer Steel.

TimkenSteel sports a Zacks Rank #1 (Strong Buy) and has a projected earnings growth rate of 425.8% for the current year. The Zacks Consensus Estimate for TMST’s current year has been revised 22.7% upward over the last 60 days. You can see 

the complete list of today’s Zacks #1 Rank stocks here.

TimkenSteel beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 59.2%. TMST shares have surged around 228% in a year.

Commercial Metals carries a Zacks Rank #2 (Buy) and has an expected earnings growth rate of 3.7% for the current fiscal year. The consensus estimate for CMC's current-year earnings has been revised 9.6% 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 7.4%, on average. CMC has rallied around 68% over the past year.

Nucor, carrying a Zacks Rank #2, has a projected earnings growth rate of 583.5% for the current year. NUE's consensus estimate for the current year has been revised 7.7% upward over the last 60 days.

Nucor has a trailing four-quarter earnings surprise of roughly 2.7%, on average. NUE has rallied around 118% in a year.

Schnitzer Steel carries a Zacks Rank #2. The Zacks Consensus Estimate for SCHN’s current year has been revised 12.8% upward over the last 60 days.

Schnitzer Steel 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 25.6%, on average. SCHN shares have surged around 111% over the past year.

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. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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