5 Steel Stocks That Thumped The Market In Q3

The steel industry remains on a slow road to recovery. Notwithstanding a few lingering headwinds, the industry ended the third quarter on a positive note, racking up a market-thumping return.  
 
The Zacks Steel Producers industry gained around 7.5% in the September quarter, higher than the S&P 500’s corresponding return of roughly 3.8%. While the overall demand fundamentals for steel remain healthy, the industry is still challenged by sustained overcapacity. The global steel industry continues to reel under the effects of excess capacity – the biggest obstacle to persistent growth and profitability.   

Meanwhile, U.S. steel mills remain impacted by low capacity utilization and a more pressing problem – renewed flood of cheap imports. A surge in steel imports have put downward pressure on U.S. steel prices during the third quarter.

Steel Demand Poised for Steady Recovery

The steel industry is poised to benefit from solid demand in the United States and emerging markets this year. The World Steel Association (WSA) – the international trade body for the iron and steel industry – expects global steel demand to expand 1.3% in 2017 following a 1% rise in 2016.

A cyclical upturn in steel demand is expected to be supported by an ongoing recovery in the developed economies along with an accelerating growth momentum in the emerging and developing economies.

The United States is expected to lead growth in the developed world thanks to strong fundamentals, measures related to fiscal stimuli and rising infrastructure spending. Steel demand in the United States is expected to rise 3% this year.

Demand in emerging and developing economies (barring China) is also expected to rise 4% this year.

Too Much Steel Poses a Concern

The global steel industry continues bear the brunt of a surge in production in China – the world's biggest steel maker. According to WSA, global crude steel production went up 4.9% year over year during the first eight months of 2017.

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