CHICAGO, Nov. 16, 2012 /PRNewswire/ -- Today, Zacks Equity Research discusses the Steel Industry, including ArcelorMittal (NYSE: MT), United States Steel Corp (NYSE: X), Nucor Corporation (NYSE: NUE) and AK Steel Holding Corporation (NYSE: AKS).
The recently reported third quarter results of the steel companies in our coverage – ArcelorMittal (MT), United States Steel Corp. (X), Nucor Corporation (NUE) and AK Steel Holding Corporation (AKS) paints a gloomy picture. Revenues were constrained across the board due to drop in average steel prices and shipments.
All the steel players have been plagued by weak steel demand, oversupply in the U.S. steel industry and increased steel imports in the domestic market, which have affected steel prices hurting margins in the process. The weak global conditions are a deterrent factor for volumes.
A preview for the upcoming fourth quarter and fiscal 2012 suggest that steel behemoth, ArcelorMittal is anticipating iron ore shipments to increase 10% in 2012 from last year levels. The company, wary of the global economic situation, particularly Europe, has decided to shut down plants, cutting down its planned 2013 capital expenditures. However, the most dramatic announcement was the company's intent to slash its annual dividend by 73% to 20 cents per share.
United States Steel expects its segments results to remain affected in the fourth quarter based on the assumption of lower average realized prices as well as lower shipments. The Tubular segment is expected to deliver profits, but significantly below the third quarter levels.
The USSE segment is expected to break even while the Flat Rolled segment is expected to be in the red. Softness in Europe as well as in the emerging markets and the economic uncertainty in North America are expected to weigh down its fourth quarter results.
AK Steel has not yet provided any specific guidance for the fourth quarter or fiscal 2012. The company, however, put forward its expectation of posting a loss in the fourth quarter, which includes a non-cash tax expense. Nucor also expects its profits to be reduced in the fourth quarter.
Now, what will be the exact picture in the upcoming results? The U.S. steel market is plagued by oversupply and increased imports. Although Chinese steel production, which was responsible for causing the glut to some extent, has somewhat slowed down, supply in the steel market still overshadows demand.
Increasing domestic imports along with oversupply in the industry due to a ramp up in operations by other steelmakers, is putting pressure on prices. We expect weak pricing, the European debt crisis and its potential global impact to remain an overhang on the steel industry in the quarter. In terms of end markets, the automotive sector holds promise and the impending recovery in the construction market, if permanent, will definitely provide a boost to the steel industry.
The extent of the impact of Hurricane Sandy that hit the East Coast in late October is yet to be assessed by the steel companies. Nucor temporarily shut down its Connecticut rebar and wire rod mill and United States Steel temporarily stalled its Fairless operation in eastern Pennsylvania.
Fourth quarter results might be affected due to the interruption in operations and associated costs/losses. However, in the near future, the steel companies will stand to benefit from the rebuilding activities necessary following the storm.
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