Following a slowdown in demand and destocking measures undertaken last year, the global steel industry is expected to see demand recover this year. Given this backdrop, investors could consider buying fundamentally strong steel stocks Companhia Siderúrgica (SID), Reliance (RS) and Acerinox (ANIOY). Read on.
Despite persistent headwinds, the steel industry is expected to expand due to rising demand from developing countries like India, favorable government policies that focus on infrastructure development, rapid urbanization, a recovery of demand in China, and technological advancements.
Given the industry’s bright prospects, it could be wise to consider investing in fundamentally solid steel stocks Companhia Siderúrgica Nacional (SID), Reliance, Inc. (RS) and Acerinox, S.A. (ANIOY).
Before diving deeper into the fundamentals of these stocks, let’s understand what’s shaping the steel industry’s prospects.
The steel industry is an essential component of the global economy, as steel is used in various applications, including construction, transportation, energy, and packaging. The global steel market is expected to grow at a 2.8% CAGR to reach $1.08 trillion by 2028.
The global steel market took a hit last year as China, the world’s biggest steel consumer, saw its economy struggle due to a property crisis. The steel market also suffered due to weaker growth in several large economies, leading to lower sales.
Destocking was one of the primary reasons steel companies saw their margins getting squeezed. According to the World Steel Association, world crude steel production was 148.1 million tonnes (Mt) in January 2024, a 1.6% decline from January 2023.
Major steel producer ArcelorMittal S.A. (MT) has said that although real demand for steel is likely to remain lackluster this year, apparent demand is showing signs of improvement as destocking reaches maturity. MT’s CEO Genuino Christino has said that world apparent steel demand, excluding China, is expected to grow by 3% to 4% year-over-year in 2024.
China’s economy is expected to continue its recovery with the range of stimulus measures announced by the government that is expected to support demand growth from infrastructure spending. Steel consumption in China is expected to grow between zero and 2%.
Fitch Ratings believes steel demand growth will continue in most regions, with global consumption rising by 20 million tonnes and 30 million tonnes this year compared to 2023. India will drive the demand growth, and Turkey will continue its strong recovery. Europe, the U.S., and Brazil will see demand grow at a moderate pace.
Furthermore, the steel industry is on the verge of a transformational period, propelled by advances in artificial intelligence (AI) and robotics. These technologies have the potential to transform the industry by increasing automation, boosting quality control, optimizing the supply chain, enabling predictive maintenance, and much more.
Steelmakers may use AI and robotics to improve efficiency, cut costs, and reduce downtime. Investors’ interest in steel stocks is evident from the VanEck Steel ETF’s (SLX) 17.5% returns over the past nine months.
With these favorable trends in mind, let’s delve into the fundamentals of the three Steel stock picks, beginning with the third choice.
Stock #3: Companhia Siderúrgica Nacional (SID)
Headquartered in São Paulo, SID is an integrated steel producer in Brazil and Latin America. It operates through five segments: Steel, Mining, Logistics, Energy, and Cement.
SID’s trailing-12-month CAPEX/Sales of 8.62% is 13.6% higher than the industry average of 7.59%.
For the fiscal third quarter that ended September 30, 2023, SID’s net sales revenue increased 2.1% year-over-year to R$11.13 billion ($2.24 billion). Its gross profit and adjusted EBITDA stood at R$2.81 billion ($565.76 million) and R$2.82 billion ($567.76 million), up 10.5% and 3.7% year-over-year, respectively.
For the same quarter, its net income stood at R$90.79 million ($18.31 million). As of September 30, 2023, SID’s current liabilities stood at R$20.68 billion ($4.17 billion), compared to R$21.39 billion ($4.31 billion) as of September 30, 2022.
Street expects SID’s EPS for the quarter ended December 31, 2023, to increase significantly year-over-year to $0.19. Its revenue is expected to increase 8.6% year-over-year to $2.35 billion for the same period. Over the past six months, the stock has gained 34% to close the last trading session at $3.31.
SID’s POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth and Stability. Within the A-rated Steel industry, it is ranked #15 out of 31 stocks. To see SID’s rating for Value, Momentum, Sentiment, and Quality, click here.
Stock #2: Reliance, Inc. (RS)
RS operates as a diversified metal solutions provider and metals service center company. The company distributes a line of approximately 100,000 metal products and provides metals processing services to general manufacturing, non-residential construction, transportation, aerospace, energy, electronics and semiconductor fabrication, and heavy industries.
On February 14, 2024, RS announced that it had signed a definitive agreement to acquire all of the outstanding equity interests and related real estate assets of American Alloy Steel, Inc., a leading distributor of specialty carbon and alloy steel plate and round bar, including PVQ material.
This acquisition will broaden RS’s product portfolio and market position in the specialty carbon and alloy steel industries. It is expected to improve RS’s capacity to service customers across a variety of industries, including energy, defense, and manufacturing.
RS’s trailing-12-month ROTA of 12.75% is 350.2% higher than the industry average of 2.83%. Its 12.03% trailing-12-month ROTC is 137% higher than the 5.08% industry average. Additionally, its 18.04% trailing-12-month ROCE is 190.9% higher than the 6.20% industry average.
RS’s net sales for the fiscal fourth quarter (ended December 31, 2023) stood at $3.34 billion, while its operating income came in at $325.10 million. The company’s non-GAAP net income attributable to RS and non-GAAP EPS stood at $274.40 million and $4.73, respectively.
Moreover, the company’s total current liabilities stood at $843.60 million as of December 31, 2023, compared to $1.38 billion as of December 31, 2022.
Over the past nine months, the stock has gained 33.8% to close the last trading session at $320.26.
It’s no surprise that RS has an overall B rating, equating to a Buy in our POWR Ratings system.
It has a B grade for Sentiment and Quality. It is ranked #14 in the same industry. Beyond what is stated above, we’ve also rated RS for Growth, Value, Momentum, and Stability. Get all RS ratings here.
Stock #1: Acerinox, S.A. (ANIOY)
Headquartered in Madrid, Spain, ANIOY manufactures, transforms, and markets stainless steel products. Its offerings include coil cold rollings, hot rolled coils, roughing materials, discs, billets, and plates.
On February 5, 2024, ANIOY announced that it has entered into a definitive agreement under which Acerinox’s wholly-owned U.S. subsidiary, North American Stainless (NAS), will acquire Haynes International, a leading developer, manufacturer, and marketer of technologically advanced high-performance alloys.
This acquisition will enable Acerinox to broaden its product offerings and improve its position in the high-performance alloys industry.
ANIOY’s trailing-12-month ROCE of 9.34% is 50.7% higher than the 6.20% industry average. Its trailing-12-month ROTA of 3.74% is 32.1% higher than the 2.83% industry average. Additionally, its 1.07x trailing-12-month asset turnover ratio is 56.4% higher than the 0.68x industry average.
ANIOY’s net sales amounted to €1.53 billion ($1.66 billion) in the fiscal fourth quarter that ended December 2023. The company’s EBITDA came in at €96 million ($104.37 million), up 6.7% year-over-year.
In addition, as of December 31, 2023, the company’s current liabilities stood at €1.90 billion ($2.07 billion), compared to €1.95 billion ($2.12 billion) as of December 31, 2022.
For the quarter ending June 30, 2024, ANIOY’s revenue is expected to increase 1.1% year-over-year to $1.95 billion. Over the past six months, the stock has gained 5.1% to close the last trading session at $5.20.
ANIOY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #2 in the Steel industry. It has a B grade for Value, Stability, and Quality. To see the additional ANIOY ratings for Growth, Momentum, and Sentiment, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
RS shares were unchanged in premarket trading Wednesday. Year-to-date, RS has gained 14.51%, versus a 6.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master’s degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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