U.S. steel imports plummeted in August on a monthly comparison basis, and were also down year over year for the first eight months of 2020 — according to the latest American Iron and Steel Institute ("AISI") report.
Imports from Brazil Drop Sharply in August
The association of North American steel makers noted that total domestic steel imports dropped 51.9% from the previous month in August to 1.3 million net tons. Finished steel imports also went down 13.9% to around 1.19 million net tons for the reported month.
Biggest volumes of finished steel imports from offshore for August were South Korea with 112,000 net tons (down 29% from July), Japan with 55,000 net tons (up 9%), Germany with 50,000 net tons (up 8%), Turkey with 46000 net tons (down 11%) and The Netherlands with 36,000 net tons (down 14%), per AISI.
Notably, August saw a significant decline in finished steel imports from Brazil — a major exporter of steel to the United States. Imports from that country plunged 92% to 7,000 net tons from 88,000 net tons in July.
The Trump administration, late last month, took fresh measures to curb steel imports from Brazil by lowering the country’s remaining quota for 2020 for semi-finished steel imports into the United States. The move came as U.S. steel markers struggle to cope with depressed market conditions in the wake of the coronavirus outbreak. The United States and Brazil are expected to meet in December to discuss about the semi-finished steel quota for 2021.
Meanwhile, total and finished domestic steel imports fell 20.7% and 26.9% year over year, respectively, year to date through the end of August 2020. The AISI noted that these figures are based on preliminary Census Bureau data.
The year-to-date decline in imports appears to reflect the impacts of the coronavirus pandemic and 25% tariff on steel imports, which the Trump administration had levied in 2018 under Section 232 of the Trade Expansion Act of 1962.
According to AISI, finished steel import market share was estimated at 17% in August. That is down from 20% a month ago. For the first eight months of 2020, finished steel import market share was estimated at 19%.
For 2020, annualized total and finished steel imports are expected to be 24.6 million net tons (down 11.9% year over year) and 16.8 million net tons (down 20.1%), respectively, AISI noted.
Demand Revival Boosts U.S. Steel Industry’s Prospects
Coronavirus has taken a big bite out of the U.S. steel industry this year. The pandemic led to a sharp drop in demand for steel across major end-use markets such as construction and automotive during the first half of 2020.
The demand slowdown also forced U.S. steel mills to curtail production with capacity utilization dropping to a multi-year lows during the first half. U.S. steel prices have also come under pressure this year amid pandemic-induced demand shocks.
The benchmark hot-rolled coil (“HRC”) prices plummeted to below the psychologically important $500 per short ton level in April on concerns over the fast-growing pandemic in the United States and demand slowdown amid production shutdowns by automakers. After gaining some ground during the second quarter on U.S. steel mills’ price hike actions, steel prices again came under pressure in July and August on demand weakness.
However, U.S. steel prices have gained ground this month climbing past $500 per short ton on a recovery in end-market demand, especially in automotive, amid supply constraints. Tight supply due to production disruptions and outages amid the pandemic is likely to lend support to HRC prices over the near term.
Meanwhile, a rebound in end-market conditions of late from the virus-led slowdown bodes well for the U.S. steel industry. U.S. automakers are ramping up production to normal levels following the resumption of production in May after a nearly two-month shutdown due to the virus crisis. The rebound in the domestic automotive industry represents a tailwind for the U.S. steel industry. Moreover, the resumption of many projects that were stalled earlier due to supply chain disruptions and labor shortage is supporting the recovery in the U.S. construction sector.
Notably, major U.S. steel producers recently came up with upbeat outlook. United States Steel Corporation X said that is encouraged by the pace at which the market is improving. The company has responded to an improving order booking by restarting three blast furnaces, which it temporarily idled in response to the pandemic.
Moreover, Nucor Corporation NUE noted that its downstream products segment as well as its bar and structural mills is benefiting from the resiliency of non-residential construction markets.
Steel Dynamics, Inc. STLD also expects to gain from higher shipments in the third quarter driven by improved automotive and strong construction demand. It also noted that the pricing of flat-roll steel has stabilized and improved during the second half of the third quarter, aided by favorable customer demand.
Steel Stocks Worth Considering
A couple of stocks currently worth considering in the steel space are Commercial Metals Company CMC and Olympic Steel, Inc. ZEUS. While Commercial Metals sports a Zacks Rank #1 (Strong Buy), Olympic Steel carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Commercial Metals has expected earnings growth of 17.3% for the current fiscal year. The Zacks Consensus Estimate for the current fiscal has been revised 2.9% upward over the last 60 days. The company also surpassed the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 38.9%. The stock is also up around 40% over the past six months.
Olympic Steel delivered an earnings surprise of 34.5% in the last reported quarter. The Zacks Consensus Estimate for the current year has been revised 20% upward over the last 60 days. The company’ shares have gained around 22% over the past six months.
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