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3 Steel Producer Stocks to Watch Amid Pricing Headwinds
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The Zacks Steel Producers industry is buffeted by significant challenges as steel prices have experienced a sharp decline in the United States and globally. Soft demand in China amid an economic slowdown is also a concern.
However, steady demand in the automotive and non-residential construction markets augur well for the industry. Players from the space, like Nucor Corporation (NUE - Free Report) , ArcelorMittal S.A. (MT - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) are worth a look despite near-term headwinds.
About the Industry
The Zacks Steel Producers industry serves a vast spectrum of end-use industries such as automotive, construction, appliance, container, packaging, industrial machinery, mining equipment, transportation, and oil and gas with various steel products. These products include hot-rolled and cold-rolled coils and sheets, hot-dipped and galvanized coils and sheets, reinforcing bars, billets and blooms, wire rods, strip mill plates, standard and line pipe, and mechanical tubing products. Steel is primarily produced using two methods — Blast Furnace and Electric Arc Furnace. It is regarded as the backbone of the manufacturing industry. The automotive and construction markets have historically been the largest consumers of steel. Notably, the housing and construction sector is the biggest consumer of steel, accounting for roughly half of the world’s total consumption.
What's Shaping the Future of the Steel Producers' Industry?
Weaker Steel Prices to Weigh on Margins: U.S. steel prices saw a sharp decline in 2024 due to a slowdown in end-market demand after a strong run in late 2023 that extended into early last year. The benchmark hot-rolled coil (HRC) prices tumbled more than 40% since reaching $1,200 per short ton at the start of 2024. The downside has been influenced by a concoction of factors, including a pullback in steel mill lead times, an oversupply of steel exacerbated by increased imports, reduced demand from key industries and economic uncertainties. Sluggish industrial production and construction activities also contributed to the decline. While the recent steel mill price hikes have led to a modest uptick in HRC prices, a significant recovery is not expected over the near term. Prices are currently hovering near the $700 per short ton level. As such, lower realized prices are expected to weigh on steel-producing companies’ profitability and cash flows.
China Slowdown a Concern: Steel demand in China, the world’s top consumer of the commodity, has softened due to a slowdown in the country’s economy following a protracted property crisis and weak global demand. The real estate sector has taken a hard hit amid a decline in new home prices, property investment and housing sales. Notably, real estate accounts for roughly 40% of China's steel consumption. A slowdown in manufacturing activities has led to a contraction in demand for steel in China. The manufacturing sector has taken a beating due to weaker external demand for manufactured goods and a slowdown in infrastructure spending. China has also seen a slowdown in the construction sector. The sluggishness in these key steel-consuming sectors is expected to hurt demand for steel over the short term. Depressed demand in China and an oversupply in the market have also exerted pressure on global steel prices.
Steady Demand in Major Markets Bodes Well: Steel producers are seeing firm demand across major steel end-use markets, including automotive and construction. A slowdown in global automotive production curtailed steel consumption in this key end-market in 2024. The automotive market is expected to rebound this year, driven by the accelerating adoption of electric vehicles as governments globally push for carbon neutrality. Improving affordability, strong demand for hybrids and aggressive promotional incentives are expected to drive new vehicle sales. Steelmakers are expected to benefit from higher order booking from the automotive market. Meanwhile, order activities in the non-residential construction market remain strong, underscoring the inherent strength of this industry. Infrastructure projects in the United States are on the rise, driven by government initiatives to upgrade transportation and utility networks. Demand in the energy sector has improved on the back of strength in oil and gas prices. Favorable trends across these markets bode well.
Zacks Industry Rank Indicates Downbeat Prospects
The Zacks Steel Producers industry is part of the broader Zacks Basic Materials Sector. It carries a Zacks Industry Rank #174, which places it at the bottom 30% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates a gloomy near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Despite the industry’s bleak near-term prospects, we will present a few stocks worth considering for your portfolio. But before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Underperforms Sector and S&P 500
The Zacks Steel Producers industry has underperformed both the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.
The industry has lost 24.3% over this period compared with the S&P 500’s rise of 24.8% and the broader sector’s decline of 1.6%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing steel stocks, the industry is currently trading at 8.16X, below the S&P 500’s 19.08X and the sector’s 11.24X.
Over the past five years, the industry has traded as high as 13.56X, as low as 2.82X and at the median of 8.60X, as the chart below shows.
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Enterprise Value/EBITDA (EV/EBITDA) Ratio
3 Steel Producer Stocks in Focus
Nucor: Charlotte, NC-based Nucor makes steel and steel products with operating facilities in the United States, Canada and Mexico. Nucor is expected to gain from the strength in the non-residential construction market. The company also remains focused on achieving greater penetration in automotive. Nucor should also benefit from considerable market opportunities from its strategic investments in its most significant growth projects. NUE remains committed to boosting production capacity, which should drive growth and strengthen its position as a low-cost producer.
Nucor carries a Zacks Rank #3 (Hold). Its earnings beat the Zacks Consensus Estimate for earnings in three of the last four quarters. NUE has a trailing four-quarter earnings surprise of roughly 7.4%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: NUE
ArcelorMittal: Luxembourg-based ArcelorMittal is among the leading integrated steel and mining companies globally. MT is expanding its steel-making capacity and focusing on shifting to high-added-value products. Its strategic expansion projects are expected to boost profitability and cash flows. MT is optimizing its decarbonization strategy to maintain competitiveness and profitability. The company is committed to returning shareholders’ value while maintaining a strong balance sheet. Its cost-improvement efforts are also expected to support margins.
ArcelorMittal currently carries a Zacks Rank #3. The company beat the consensus estimate for earnings in three of the trailing four quarters. In this time frame, it has delivered an average earnings surprise of roughly 36.6%. MT has an expected earnings growth of 31.8% for 2025.
Price and Consensus: MT
Steel Dynamics: Based in Indiana, Steel Dynamics is a leading steel producer and metals recycler in the United States. It is seeing strong customer order activity for flat-rolled steel. Steel Dynamics is also currently executing several projects that should add to its capacity and boost profitability. STLD is ramping up operations at its new state-of-the-art electric arc furnace flat-rolled steel mill in Texas. The value-added flat-rolled steel coating lines, consisting of two paint lines and two galvanizing lines, also enhance the annual value-added flat-rolled steel capacity. The company is ramping up volumes from these lines, which are expected to provide earnings benefits in 2025. It is also making progress with its aluminum flat-rolled products mill and plans to produce commercially viable products before mid-year 2025.
Steel Dynamics carries a Zacks Rank #3. The company outpaced the Zacks Consensus Estimate in each of the trailing four quarters with an average earnings surprise of roughly 3.6%.
Price and Consensus: STLD
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3 Steel Producer Stocks to Watch Amid Pricing Headwinds
The Zacks Steel Producers industry is buffeted by significant challenges as steel prices have experienced a sharp decline in the United States and globally. Soft demand in China amid an economic slowdown is also a concern.
However, steady demand in the automotive and non-residential construction markets augur well for the industry. Players from the space, like Nucor Corporation (NUE - Free Report) , ArcelorMittal S.A. (MT - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) are worth a look despite near-term headwinds.
About the Industry
The Zacks Steel Producers industry serves a vast spectrum of end-use industries such as automotive, construction, appliance, container, packaging, industrial machinery, mining equipment, transportation, and oil and gas with various steel products. These products include hot-rolled and cold-rolled coils and sheets, hot-dipped and galvanized coils and sheets, reinforcing bars, billets and blooms, wire rods, strip mill plates, standard and line pipe, and mechanical tubing products. Steel is primarily produced using two methods — Blast Furnace and Electric Arc Furnace. It is regarded as the backbone of the manufacturing industry. The automotive and construction markets have historically been the largest consumers of steel. Notably, the housing and construction sector is the biggest consumer of steel, accounting for roughly half of the world’s total consumption.
What's Shaping the Future of the Steel Producers' Industry?
Weaker Steel Prices to Weigh on Margins: U.S. steel prices saw a sharp decline in 2024 due to a slowdown in end-market demand after a strong run in late 2023 that extended into early last year. The benchmark hot-rolled coil (HRC) prices tumbled more than 40% since reaching $1,200 per short ton at the start of 2024. The downside has been influenced by a concoction of factors, including a pullback in steel mill lead times, an oversupply of steel exacerbated by increased imports, reduced demand from key industries and economic uncertainties. Sluggish industrial production and construction activities also contributed to the decline. While the recent steel mill price hikes have led to a modest uptick in HRC prices, a significant recovery is not expected over the near term. Prices are currently hovering near the $700 per short ton level. As such, lower realized prices are expected to weigh on steel-producing companies’ profitability and cash flows.
China Slowdown a Concern: Steel demand in China, the world’s top consumer of the commodity, has softened due to a slowdown in the country’s economy following a protracted property crisis and weak global demand. The real estate sector has taken a hard hit amid a decline in new home prices, property investment and housing sales. Notably, real estate accounts for roughly 40% of China's steel consumption. A slowdown in manufacturing activities has led to a contraction in demand for steel in China. The manufacturing sector has taken a beating due to weaker external demand for manufactured goods and a slowdown in infrastructure spending. China has also seen a slowdown in the construction sector. The sluggishness in these key steel-consuming sectors is expected to hurt demand for steel over the short term. Depressed demand in China and an oversupply in the market have also exerted pressure on global steel prices.
Steady Demand in Major Markets Bodes Well: Steel producers are seeing firm demand across major steel end-use markets, including automotive and construction. A slowdown in global automotive production curtailed steel consumption in this key end-market in 2024. The automotive market is expected to rebound this year, driven by the accelerating adoption of electric vehicles as governments globally push for carbon neutrality. Improving affordability, strong demand for hybrids and aggressive promotional incentives are expected to drive new vehicle sales. Steelmakers are expected to benefit from higher order booking from the automotive market. Meanwhile, order activities in the non-residential construction market remain strong, underscoring the inherent strength of this industry. Infrastructure projects in the United States are on the rise, driven by government initiatives to upgrade transportation and utility networks. Demand in the energy sector has improved on the back of strength in oil and gas prices. Favorable trends across these markets bode well.
Zacks Industry Rank Indicates Downbeat Prospects
The Zacks Steel Producers industry is part of the broader Zacks Basic Materials Sector. It carries a Zacks Industry Rank #174, which places it at the bottom 30% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates a gloomy near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Despite the industry’s bleak near-term prospects, we will present a few stocks worth considering for your portfolio. But before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Underperforms Sector and S&P 500
The Zacks Steel Producers industry has underperformed both the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.
The industry has lost 24.3% over this period compared with the S&P 500’s rise of 24.8% and the broader sector’s decline of 1.6%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing steel stocks, the industry is currently trading at 8.16X, below the S&P 500’s 19.08X and the sector’s 11.24X.
Over the past five years, the industry has traded as high as 13.56X, as low as 2.82X and at the median of 8.60X, as the chart below shows.
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Enterprise Value/EBITDA (EV/EBITDA) Ratio
3 Steel Producer Stocks in Focus
Nucor: Charlotte, NC-based Nucor makes steel and steel products with operating facilities in the United States, Canada and Mexico. Nucor is expected to gain from the strength in the non-residential construction market. The company also remains focused on achieving greater penetration in automotive. Nucor should also benefit from considerable market opportunities from its strategic investments in its most significant growth projects. NUE remains committed to boosting production capacity, which should drive growth and strengthen its position as a low-cost producer.
Nucor carries a Zacks Rank #3 (Hold). Its earnings beat the Zacks Consensus Estimate for earnings in three of the last four quarters. NUE has a trailing four-quarter earnings surprise of roughly 7.4%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: NUE
ArcelorMittal: Luxembourg-based ArcelorMittal is among the leading integrated steel and mining companies globally. MT is expanding its steel-making capacity and focusing on shifting to high-added-value products. Its strategic expansion projects are expected to boost profitability and cash flows. MT is optimizing its decarbonization strategy to maintain competitiveness and profitability. The company is committed to returning shareholders’ value while maintaining a strong balance sheet. Its cost-improvement efforts are also expected to support margins.
ArcelorMittal currently carries a Zacks Rank #3. The company beat the consensus estimate for earnings in three of the trailing four quarters. In this time frame, it has delivered an average earnings surprise of roughly 36.6%. MT has an expected earnings growth of 31.8% for 2025.
Price and Consensus: MT
Steel Dynamics: Based in Indiana, Steel Dynamics is a leading steel producer and metals recycler in the United States. It is seeing strong customer order activity for flat-rolled steel. Steel Dynamics is also currently executing several projects that should add to its capacity and boost profitability. STLD is ramping up operations at its new state-of-the-art electric arc furnace flat-rolled steel mill in Texas. The value-added flat-rolled steel coating lines, consisting of two paint lines and two galvanizing lines, also enhance the annual value-added flat-rolled steel capacity. The company is ramping up volumes from these lines, which are expected to provide earnings benefits in 2025. It is also making progress with its aluminum flat-rolled products mill and plans to produce commercially viable products before mid-year 2025.
Steel Dynamics carries a Zacks Rank #3. The company outpaced the Zacks Consensus Estimate in each of the trailing four quarters with an average earnings surprise of roughly 3.6%.
Price and Consensus: STLD