It’s been a rough two years for those in the steel-making industry. Severe post-pandemic market volatility has been rough on the sector, and yet there are now signs that the steel sector could be back to growth in 2024.
Should that happen, several major Canadian companies could benefit. So let’s look at what’s happening, and some investments to consider on the TSX today.
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What happened
The World Steel Association announced this week that global steel demand is expected to rise by 1.7% in 2024, hitting 1.8 billion metric tons. It should then go on to further increase in 2025 as demand in India grows further, even as Chinese demand shrinks.
By 2025, demand should rise a further 1.2% to 1.8 billion tons even as China’s demand fell 3.3% in 2023, and is expected to steady out in 2024. This comes as a decline in real estate investments will be offset by growth in the infrastructure space as well as manufacturing. A huge drop from 2020 peaks.
Meanwhile, India should continue to be a huge driver of growth, with demand at its strongest since 2021 levels. India demand should grow by 8% in both 2024 and 2025. But it’s not only India, with demand rising in Europe slightly in 2024, though projected to gain 5.3% by 2025. And United States demand should follow this year as well after a housing market slowdown in 2023.
Therefore, many countries are seeing demand start to rise, and that means these two Canadian steel stocks should be big beneficiaries.
Teck resources
Teck Resources (TSX:TECK.B) announced last year its plans to spin out its steel-making business. And it’s the perfect time to do it amongst all these market demand increases. The company has a long history of strength in its steel-making sector, and that should continue when it comes on the market as its own entity.
Meanwhile, there is enough reason on hand to buy up the stock. Teck stock is up 15% in the last year alone as of writing, though still trades at just 14.4 times earnings. Its profit margin remains strong at 16%, with just 39% of equity needed to cover all debts.
After seeing adjusted profit shrink from US$643 million in the second quarter to US$399 million in the third, it was up again. By the fourth quarter, adjusted profit hit US$694 million, showing quite positive momentum heading into 2024. And that should only continue as the company spins out its steel making business.
Stelco
Another company investors should continue to consider is Stelco Holdings (TSX:STLC). Stelco stock operates two steel mills in Ontario, producing a wide rage of steel products for various industries. These products are then shipped out on an international scale, and that’s likely to increase in the coming year. It’s great timing considering the company is coming off a bit of a rough year with demand down for the product. Even so, the company still ended out 2023 with a positive outlook.
Stelco reported revenue of $841 million in the second quarter, which dropped to $776 million in the third quarter and $613 million by the fourth quarter. The company continued to operate at a loss in the fourth quarter of $25 million.
So with 2023 behind them, it’s time to look forward. And it’s going to have to make some huge moves, considering net income dropped from $997 million to $149 million for 2023. Yet it looks like management is positive about the future, announcing the intention to buyback up to 10% of shares. And with a 4.54% dividend yield to consider, investors could be looking at a lot of passive income coming their way.
