Commodities & Metals
Steel Downgrades Met by Severe Global Steel Production Declines
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When United States Steel Corp. (NYSE: X) was downgraded to Market Perform from Outperform at Cowen, something more should have stood out for the entire steel sector. Where there is smoke there is fire, but there may not be any fire in the world’s steel production.
A coincidental report from the World Steel Association on January 2016’s world crude steel production should show just why there is no more hope right now. This is production for the 66 countries reporting to the association, and (as you might have guessed by this tone) it was down handily. World steel production was 7.1% lower than a year earlier to 128 million metric tonnes (Mt).
Another sharp decrease was in capacity utilization, with the global crude steel capacity utilization ratio falling by 5.8 percentage points to 66.0% in January 2016.
With a drop of 7.1%, it is important to figure out where the production was “less bad” (under 7%) and where the overhangs are (over 7%). Then there is the notion that size matters, as China has roughly half of the entire world’s production.
Now there may be more to the story when you consider the Cowen downgrade of U.S. Steel. What really stood out was that the firm had the highest analyst estimate by far, at $30.00 before the downgrade. Its new price target for the stock is only $8.00.
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