20131121-美银美林-October_global_steel_output_falls_1.9__m_m_led_by_China_13页_625kb

Global Steel Production and Market Outlook Summary

Core Content

In October 2013, global steel production declined by 1.9% month-over-month (m/m) on a days-adjusted basis, but increased by 6.6% year-over-year (y/y). This decline was primarily driven by a 3.7% m/m drop in China, while the rest of the world excluding China only saw a 0.1% m/m decline. China remained the largest steel producer, accounting for 48% of total global output, and its higher y/y production was the main factor behind the global increase.

Global steel production reached 134.262 million metric tons (mt) in October 2013, with annualized production at 781 million mt. Capacity utilization for the month was 77.5%, a decrease from 79.3% in September, but an increase from 75% in October 2012.

Main Points

• Global Steel Output:
  • -1.9% m/m (days-adjusted)
  • +6.6% y/y
• China:
  • -3.7% m/m (days-adjusted)
  • +48% of global production
  • Annualized production at 781M mt
  • Expected to grow by 5.8% y/y in 2014E due to policy-driven investment
  • Producer margins likely to remain under pressure due to supply outpacing demand
• Other Major Regions:
  • U.S.: -1.9% m/m, +8.7% y/y
  • EU: -0.4% m/m, +4% y/y
• Capacity Utilization:
  • 77.5% in October 2013, down from 79.3% in September but up from 75% in October 2012

Key Insights

• China’s Dominance: Despite the m/m decline, China’s y/y growth was a key driver of global steel production, with its production accounting for almost half of the world's total.
• Global Trends: The global steel market is showing signs of recovery, with y/y increases in major regions. However, the m/m decline suggests a slowdown in the short term.
• Capacity Utilization: Global utilization improved from the previous year but declined slightly from the prior month, indicating a cautious market environment.
• Market Outlook: The report suggests that while there are positive long-term prospects for steel production, short-term risks include macroeconomic headwinds, raw material cost pressures, and potential overcapacity in certain regions.

Company Analysis

Buy Recommendations

• ArcelorMittal (AMSYF / MT): 12-month price objective at EUR14.50/sh (US$19.14/ADR), based on a 7x EV/EBITDA multiple. Positive momentum in prices and potential for volume growth.
• Nucor (NUE): Price objective at $60/share, based on 7x 2014-15E EV/EBITDA. Strong earnings visibility from DRI project and locked-in gas prices.
• NLMK (XKOVF / XNVLF): Price objective at US$19.5 per GDR (RUB64.35 per local share), with an 8x EV/EBITDA multiple. Strong balance sheet and capex flexibility justify the premium.
• SeverStal (XVSEF / XVCHF): Price objective at US$12.0 per GDR (RUB396 per share), with a 7x EV/EBITDA multiple. Potential for price increases and rouble devaluation could support upside.

Neutral Recommendations

• Gerdau S.A. (GGBUF / GGB): Price objective at R$19/share (US$8.8/ADR). Upside risks include stronger government spending and domestic demand, while downside risks include cost pressures and slower demand recovery.
• CSN (SID): Price objective at R$10.0/share (US$4.6/ADR). Mixed outlook due to potential currency and commodity price volatility.

Underperform Recommendations

• Mechel (MTL / XCMHF): Price objective at US$3.1 per ADR (RUB102 per local share). Risks include falling steel and coal prices, weaker volumes, and rouble appreciation.
• MMK (XGMJF / MGKPF): Price objective at US$3.30 per GDR (RUB8 per share). Risks include falling steel prices and rouble appreciation.
• Evraz Plc (EVRZF): Price objective at GBP133/sh. Risks include falling steel prices, weak project execution, and rouble appreciation.

Risk Factors

• Macroeconomic Headwinds: Could delay projects and affect demand.
• Raw Material Costs: Higher costs may impact margins and require price adjustments.
• Currency Volatility: Especially in Brazil and Russia, affecting competitiveness and profitability.
• Overcapacity: Potential for price deflation and margin pressure.
• Project Delays: Affecting production and earnings visibility.
• Government Policy: Influence on domestic demand and investment in infrastructure.

Conclusion

The global steel market showed a mixed performance in October 2013, with a month-over-month decline but a year-over-year increase. China’s production dropped significantly, but its y/y growth was the main driver of the global uptick. The report outlines a cautious outlook, with some companies showing potential for growth and others facing challenges due to macroeconomic and market conditions. Buy recommendations are given to companies with strong fundamentals and growth prospects, while neutral and underperform ratings are assigned to those with higher risks and less favorable market conditions.