Analysis: The steel industry stocks worth considering
By Rob Griffin
13:39, 18 November 2021
Steel companies have been enjoying a purple patch. Rising prices have made it a bumper year for the industry with huge increases in annual profits.
The current boom, which follows a slump in demand at the height of the Covid-19 pandemic in 2020, has also provided a boost to company share prices.
Here we assess the impact of the sharply rising prices and highlight a few companies that may be worth watching over the coming months.
Salzgitter enjoys profit hike
The German company reported pre-tax profits of €604.5m ($686m) for the first nine months of 2021 – €828.9m up from the €224.4m loss for the corresponding period in 2020.
“This result was driven by the dynamic uptrend in selling prices through to August that first and foremost impacted the results of the strip steel and trading business units,” it stated.
It highlighted how European steel producers had benefited from the strong economic upswing in the first half of 2021 following the previous year’s coronavirus-driven slump.
“Global crude steel output, along with European steelworks’ production, has risen steadily since the start of the year, enabling full-capacity utilisation again,” it added.
The steelmaker, which was formed in 2006 from the merger of Arcelor and Mittal, has been another major beneficiary of the current environment.
According to chief executive Aditya Mittal, the outlook remains positive, with underlying demand expected to continue improving, albeit “marginally off” the recent record highs.
“Our third-quarter results were supported by the continuing strong price environment, resulting in the highest net income and lowest net debt since 2008,” he said.
Falling output “a boost”
Danni Hewson, financial analyst at AJ Bell, said it may seem counterintuitive, but falling steel output has actually helped boost the industry’s profits.
“When the global economy raced out of the pandemic, steel was in big demand and more than outstripped supply,” she said. “Prices shot up and customers simply had to pay a premium or wait”.
She is also optimistic about the outlook.
“The chip shortage will eventually resolve, auto-makers will pick up pace as more motorists transition to electric, and then there is US President Joe Biden’s infrastructure bill,” she said. “There is much to build – but only so much steel to go around”.
Five stocks to watch
Hewson highlighted five steelmaking companies that could be worth watching over the coming months for a number of reasons.
“I’m picking Timken Steel and Nucor in the US for their massive hike in share price over the last year, both fantastic third-quarter earnings,” she said.
Hewson named SSAB and Outokumpu “for their dividend yields”, while ArcelorMittal was cited due to its recently posted strong quarterly figures.
The company is the largest steel manufacturer in North America, South America and Europe, with approximately 168,000 employees around the world.
It recently reported its best quarterly profit for 13 years, with surging steel prices more than offsetting weaker demand.
CEO Mittal said the company was “aware of the challenge but excited by the opportunities” that will exist for steel in the coming years.
“The outlook remains positive: underlying demand is expected to continue to improve; and, although marginally off the recent record highs, steel prices remain at elevated levels, something which will be reflected in the annual contracts for 2022,” he added.
The US company has seen its share price rise 212% since the start of 2021, from $4.84 to $15.12, by 18 November 2021.
It recently reported third-quarter net sales of $343.7 million, increased 5% sequentially, with net income of $50.1m and record adjusted EBITDA of $72m.
“As we head into the end of the year, I am encouraged that the demand environment remains robust, and our first half of 2022 order book is filling up in a strong pricing environment,” CEO Mike Williams said.
The US-based diversified steel and steel products company has also seen its stock price soar – rising 108% from $52.51 at the start of 2021 to $109.11, as of 18 November 2021.
In late October, it reported record net earnings of $2.13bn for the third quarter, up from $1.51bn during the second quarter.
In a statement, the company insisted it was optimistic about future prospects.
“We expect continued strong results for the fourth quarter of 2021, potentially exceeding the net earnings record set in the third quarter of 2021,” it stated.
The Swedish steel producer is upbeat about the fourth quarter, pointing out there is a “lag in the realisation of steel prices” when compared to the spot market.
“However, there is uncertainty in demand on the European market, among other things due to the shortage of semiconductors, which primarily affects the vehicle industry,” it said in a statement.
During the third quarter, the company made fossil-free steel and delivered it to Volvo Group, as well as signing new collaboration agreements for similar deals, including one with Mercedes-Benz.
The company, headquartered in Helsinki, Finland, recently reported that high prices and continued progress on margin improvement had supported its profitability in the third quarter.
It resulted in adjusted EBITDA of €295m – the best quarter in its recent history.
CEO Heikki Malinen said he was proud that the company had achieved €695m of adjusted EBITDA in the first three quarters of the year.
“The result is supported by a combination of a strong market environment and our own decisive actions in strategy execution,” he said.