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The steel industry, a pillar of industrial growth, is hamstrung by significant challenges as steel prices have experienced a sharp decline on a slowdown in end-market demand. Notably, U.S. steel prices have seen a significant downward correction this year after a strong run in late 2023 that extended into early 2024.
Despite the industry’s downturn, a few stocks are holding up well and look poised to run further. L.B. Foster Company FSTR, Carpenter Technology Corporation CRS and Gerdau S.A. GGB fit the bill.
Steel prices have witnessed a steep decline in the United States and globally this year. The benchmark hot-rolled coil (HRC) prices tumbled to below the $700 per short ton level in late September 2023. The downside was partly driven by shorter lead times. The United Auto Workers (UAW) strike and the lower cost of raw materials also weighed on HRC prices. Nevertheless, U.S. steel prices rebounded during the fourth quarter, with HRC prices breaking above $1,000 per short ton in December, driven by U.S. steel mills’ price hike actions and the resolution to the UAW strike.
However, HRC prices have retreated since early 2024, with prices plummeting to below $800 per short ton in March 2024 from $1,200 per short ton at the start of the year. This more than 30% decline was influenced by a concoction of factors, including a pullback in steel mill lead times, an oversupply of steel exacerbated by increased imports, reduced demand from key industries and global economic uncertainties. Sluggish industrial production and construction activities also contributed to the decline. The price slump has led to lower profitability for steel producers. U.S. HRC prices continue their downward slide, being pressured by an influx of imports, currently hovering above the $700 per short ton level.
The construction sector has experienced a slowdown in the United States due to high interest rates, dampening steel demand in this key end market. Elevated borrowing costs and inflation have taken a bite out of the residential construction industry. Manufacturing activities have also weakened amid softening demand for goods and higher borrowing costs.
On a positive note, demand in the automotive sector, a major consumer of steel, has improved as automotive production has picked up on easing supply chain disruptions. Meanwhile, demand in non-residential construction remains resilient with strong order activities. Infrastructure projects in the United States are on the rise, driven by government initiatives to upgrade transportation and utility networks.
Globally, economic slowdown and energy price volatility have dampened industrial activities in Europe, curbing steel demand. Demand in China, the world's largest steel producer and consumer of the commodity, is also under pressure. The country, which accounts for more than half of global steel production and consumption, is experiencing slower economic growth and a cooling real estate market.
China’s sluggish property market and slowing infrastructure investments have led to weakened domestic demand for steel. The real estate sector has taken a hard hit amid a decline in new home prices, property investment and housing sales. Notably, real estate accounts for roughly 40% of China's steel consumption. Depressed demand in China and the oversupply in the market have exerted pressure on global steel prices.