Steel sector affected by coronavirus

Lower demand for steel in China, the world's largest consumer, amid a slowdown in the domestic economy, poses challenges for the steel industry. The deadly virus has heavily impacted commodities, including steel, due to concerns about weak demand in China (read: 5 stocks of basic materials to buy despite Coronavirus surge).

Notably, the outbreak caused a massive sell-off in US steel stocks. Shares of major American steel companies such as United States Steel Corp. X, Nucor Corporation NUE, Steel Dynamics, Inc. STLDs are up about 57%, 48% and 55% respectively since the beginning of the year.

Over the past couple of months, US steel prices have also come under pressure from the epidemic. Several US steelmakers recently announced new rounds of price increases. However, the current weak economic situation and the demand situation in China do not look favorable for the growth of steel prices in the near future.

The pandemic has wreaked havoc on China's economy, as evidenced by the latest cool economic performance. The country's factory activity fell to an all-time low in February thanks to the outbreak. China's services sector also fell to a record low last month.

Manufacturing activities in the country have been disrupted due to shutdowns imposed by the Chinese authorities. While factories have begun to reopen gradually, they are struggling to get back on their feet as raw materials are scarce due to intense transport controls and many workers are still in quarantine. Events are expected to resume in April.

Meanwhile, China's steel demand is also expected to remain sluggish for a short time as economic activity in the country is expected to remain weak amid the coronavirus crisis. The pandemic has slowed construction activity (a large steel end-use market) in China. The automotive industry, which consumes a large chunk of steel, is also one of the hardest hit industries.

ArcelorMittal MT, the world's largest steelmaker, expects the coronavirus to have a short-term negative impact on Chinese demand. According to forecasts of the metallurgical giant, the total demand in the country in 2020 will remain at the level of 1%.

The WSA also expects demand in China to fall this year amid fluctuations in the domestic economy. Chinese demand growth is projected to slow to 1% this year from 7.8% in 2019, according to a trade organization. The weak manufacturing sector is expected to be a constraint.

The Zacks Steel Producers industry is currently ranked # 200 by the Zacks Industry Rank, which puts it 21st in over 250 Zacks companies. Our research