The global lockdown and subsequent social distancing restrictions compelled by the COVID-19 pandemic caused the steel industry to plummet over the first two quarters of 2020. The near halt in industrial and manufacturing activities in China contributed significantly to a global supply glut because China is the world’s largest consumer of steel. With excess reserves and falling prices, global steel production fell 1.4% year-over-year in the first quarter of 2020.
However, as the global economy has gradually reopened and the demand for steel has picked back up, the steel industry is poised to make a strong comeback. With a rise in demand from the automotive industry, which is the largest consumer of steel, crude steel production has increased 4.8% year-over-year to 162.9 million tonnes in January 2021, according to a report released by the World Steel Association.
President Biden’s proposed $2 trillion infrastructure initiative is expected to contribute significantly to the steel industry’s long-term growth. Furthermore, the Coalition of American Metal Manufacturers and Users has urged Biden to terminate Section 232 tariffs on steel and aluminum, arguing that that the tariffs imposed by the previous administration have negatively impacted the industry.
Based on these factors, we believe steel stocks ArcelorMittal S.A. (MT) and Olympic Steel, Inc. (ZEUS) will benefit from a rise in demand based on their diverse market reach.
Click here to check out our Infrastructure Sector Report for 2021
Based in Luxembourg MT owns and operates steel, iron ore manufacturing and coal mining facilities in Europe, North and South America, Asia, and Africa. The company operates through five segments — NAFTA, Brazil, Europe, Africa, and Commonwealth of Independent States (ACIS), and Mining. MT sells its products to various customers in the automotive, appliance, engineering, construction, energy, and machinery industries through a centralized marketing organization and through distributors.
MT Asturias completed its coke-oven gas injection project for Blast Furnace B in its Gijón plant in February. It is a strategic step to reduce CO2 emissions and operational costs. The company’s Board of Directors announced in February that Aditya Mittal, who was President, CFO and CEO of ArcelorMittal Europe will now lead MT as the CEO. Lakshmi N. Mittal who was the chairman and CEO of the company became the executive chairman and will continue to lead the Board of Directors and work together with the CEO and the management team.
The company’s sales have increased nearly 7% sequentially to $14.18 billion for the fourth quarter, ended December 31, 2020. MT’s operating income was $2 billion, which represents an improvement of 178.3% sequentially. Its net income was $1.21 billion compared to a net loss of $261 million for the third quarter of 2020 (ended September 30, 2020). Also, its EPS was $1.00 compared to a loss per share of $1.86 for the fourth quarter of 2019.
A consensus EPS estimate of $1.93 for the quarter ending June 30, 2021 represents an improvement of 743.3% year-over-year. A consensus revenue estimate of $15.70 billion for the same quarter ending June 30, 2021 represents a 47.5% gain on a year-over-year basis. The stock has gained 112.8% over the past six months and closed Friday’s trading session at $26.94.
MT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
The stock has an A grade for Sentiment and a B grade for Growth, Value, Momentum and Quality. We have also rated MT for Stability. Click here to access all of MT’s ratings.
MT is ranked #6 of 36 stocks in the A-rated Steel industry.
Olympic Steel, Inc. (ZEUS)
Founded in 1954, ZEUS is a metals service center and provides metals processing and distribution services for a range of customers. The company operates through three segments — carbon flat products, specialty metals flat products, and tubular and pipe products. ZEUS also maintains an inventory of carbon, stainless and aluminum coil, plate and sheet products, and tubular and pipe products.
The company’s Board of Directors approved a regular quarterly cash dividend of $0.02 per share payable on March 15. In December 2020, ZEUS acquired the assets of Action Stainless & Alloys, Inc., a Texas-based company involved in the distribution of stainless steel and aluminum plate, sheet, angles, rounds, flat bar, tubing, and pipe. The transaction marked ZEUS’ fourth acquisition over the past three years.
The company’s net sales have increased 3.7% year-over-year to $331.55 million for the fourth quarter, ended December 31, 2020. ZEUS’ operating income came in at $5.37 million, up more than 429% year-over-year. Its net income was $1.79 million compared to a net loss of $0.89 million for the fourth quarter of 2019. Also, its non-GAAP EPS came in at $0.14 compared to a loss per share of $0.23 for the fourth quarter of 2019.
A consensus EPS estimate of $0.71 for the current quarter, ending March 31, 2021, represents an improvement of 1320% year-over-year. The consensus revenue estimate of $305.07 million for the quarter ending June 30, 2021 represents a 22.9% gain on a year-over-year basis. The stock has gained 163.4% over the past six months and closed Friday’s trading session at $29.
It’s no surprise that ZEUS has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system.
The stock has an A grade for Growth and a B grade for Value, Momentum and Quality. Click here to see the additional ratings for ZEUS (Stability and Sentiment).
ZEUS is ranked #7 in the same industry.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Click here to check out our Infrastructure Sector Report for 2021
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MT shares were trading at $27.12 per share on Monday afternoon, up $0.18 (+0.67%). Year-to-date, MT has gained 18.43%, versus a 6.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More…
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