CHICAGO, June 25, 2012 /PRNewswire/ -- Today, Zacks Equity Research discusses the U.S. Steel, including ArcelorMittal (NYSE:MT), United States Steel Corp. (NYSE:X), Nucor Corporation (NYSE:NUE) and AK Steel Holding Corporation (NYSE:AKS).
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A synopsis of today's Industry Outlook is presented below. The full article can be read at
http://www.zacks.com/stock/news/79473/steel-industry-stock-outlook-july-2012
Reflecting on the first quarter results of the steel companies in our coverage – ArcelorMittal (NYSE:MT), United States Steel Corp. (NYSE:X), Nucor Corporation (NYSE:NUE) and AK Steel Holding Corporation (NYSE:AKS) – we see revenues benefitting from higher average steel prices. On the volume front it was a mixed bag as ArcelorMittal and U.S. Steel witnessed a rise, while Nucor and AK Steel suffered declines. Revenues increased at all the companies except AK Steel. However, we note margin compression across the board.
As we look into second-quarter results, Nucor's volumes saw a lift but a fall in average prices constrained its revenues. Profit was affected considerably by an oversupply in the industry and a gloomy European market. The rest of the companies have yet to release their second quarter numbers.
Let's have a preview of what the companies are expecting in the second quarter. Arcelor Mittal expects steel shipments in the second quarter of 2012 to be at similar levels with the first quarter. The Mining segment is expected to benefit from seasonally higher iron ore shipments. The company forecasts that all of its segments will demonstrate improved underlying profitability in the second quarter. It expects that EBITDA for the first half of 2012 will be higher than the first half of 2011. ArcelorMittal anticipates its own iron ore and coal production to increase by approximately 10% in 2012.
U.S. Steel expects all three of its segments to report positive results in the second quarter with total segment results in line with the first quarter. Improvement in average realized prices is expected to show in the next quarter with its European segment expected to report positive income.
AK Steel has provided a muted guidance for the quarter in a range of 4–6 cents per share, well below last year's earnings of 32 cents in the wake of macroeconomic weakness and falling spot prices. The company expects shipments to be slightly higher than the first quarter of 2012 while average prices are expected to remain flat with the first 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, primarily driven by weakness in the construction industry.
Increasing domestic imports along with oversupply in the industry due to a ramp-up of operations by other steelmakers, is putting pressure on prices. A recent fall in scrap prices has further put pressure on steel pricing. We expect weak pricing to weigh on second quarter results. Furthermore, the European debt crisis and its potential global impact remain an overhang on the steel industry.
Given the scenario in Europe, ArcelorMittal, the world's largest steelmaker by volume and Europe's largest steelmaker, decided to idle five of its 25 blast furnaces in Europe and announced the extended idling of a number of facilities. The company will continue to align its steel growth projects to match demand situations.
In addition, the company's focus on its mining business given its more attractive returns has resulted in some planned steel investments being deferred. To reduce its exposure to Europe, the company has also sold its 24% share in European energy company Enovos International.
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