QUOTE AND NEWS
OilVoice  Apr 9  Comment 
North America Western Asia Holdings NAWAH U.S. Steel Tubular Products a subsidiary of United States Steel Corporation and MRC Global Inc. have announced an alliance to bring critical oil well equ
TheStreet.com  Apr 6  Comment 
GARY, Ind. -- U.S. Steel has temporarily halted steelmaking at its massive northwestern Indiana mill because the ice-covered Great Lakes have cut off its access to vital iron ore and other raw materials. The company said in a letter to its...
newratings.com  Apr 3  Comment 
WASHINGTON (dpa-AFX) - United States Steel Corp. (X)Thursday said David Britten, its Senior Vice President - Tubular Operations, will be its Senior Vice President and Chief Technology Officer, the newly created position. Anthony Bridge, the...
Benzinga  Mar 27  Comment 
Gordon Johnson is the Managing Director and Senior Equity Research Analyst at Axiom Capital Management. He covers the clean technology sector, which includes companies in sectors such as clean coal, solar and fuel cell. He was recently ranked by...
SeekingAlpha  Mar 27  Comment 
By Anup Singh: Steelmaker United States Steel (X) has had a torrid time as far as its financial performance is concerned. Still, the company's shares are up 40% in the last one year, outperforming peer Nucor (NUE) by a wide margin. But in 2014,...
Resource Investor  Mar 25  Comment 
U.S. Steel, the biggest domestic producer of pipes and tubes sold to drillers, is among steelmakers who say they have been unfairly harmed.
Benzinga  Mar 14  Comment 
In a report published Friday, Credit Suisse research analyst Nathan Littlewood downgraded United States Steel Corp. (NYSE: X) from Neutral to Underperform. Littlewood noted that United States Steel Corp. has outperformed international peers...
SeekingAlpha  Mar 12  Comment 
By FAF Research: I like to keep a close eye on the developments of the steel industry and sometimes, I come across interesting investment options, like United States Steel Corporation (X). Although I take many aspects into account when I analyze a...
Benzinga  Mar 10  Comment 
In a report published Monday, Nomura analyst Curt Woodworth upgraded the rating on United States Steel (NYSE: X) from Neutral to Buy, and raised the price target from $27.00 to $32.00. In the report, Nomura noted, “We are upgrading US Steel...




RELATED WIKI ARTICLES
 

The United States Steel Corporation (NYSE: X) is the largest integrated steel manufacturer in North America.

Company Overview

While US Steel was founded as a steel producer, it expanded and acquired several different business sectors over the 20th century[1]. By the 1980's, U.S. Steel had a very diversified business structure that included involvement in the steel, energy, agri-chemical, domestic transportation and raw materials industries. Since then, however, the company has restructured itself and returned to its roots as a company dedicated to the production of steel products. In a currently consolidating steel industry, U.S. Steel has maintained discipline in its business approach in recent years, focusing on increasing the production of its current business sectors and improving its product quality. This conservative business approach is aimed to keep the company from suffering losses in times of industry setbacks or economic downturns. On the other hand, U.S. Steel may be missing opportunities to expand its business through acquisitions similar to the strategies employed by U.S. market leaders Arcelor Mittal (MT) and Nucor (NUE).

U.S. Steel still remains dependent on key industries and regions in spite of its vertical integration efforts. In particular, U.S. Steel is dependent on the petroleum and auto industries and is highly affected by activities in China, which affect most steelmakers worldwide.

  • Oil and gas companies purchase nearly all of its tubular steel products for use on pipelines and oil rigs. The company is the market leader in this type of steel production and sources a third of its revenue from this sector.
  • Automobile manufacturers consume 20% of all steel shipments to build cars and trucks. U.S. Steel is highly tied to the Big Three automakers (GM, Ford, Daimler Chrysler) which have suffered poor performance recently.
  • While China is driving a large portion of the increase in demand for steel, the country is also ramping up its own steel production capabilities. China's becoming a net exporter of steel could flood the market and drive down prices.

Business & Financial Metrics

Q1 FY 2011 Quarterly Earnings Summary

US Steel announces a net loss of $86 million for the first quarter of 2011, an improvement from net losses of $157 million for the first quarter of 2010.[2] Despite these losses, US Steel posted a 6% increase in quarterly shipments from the previous quarter, totaling 5.8 million tons[2] Similarly, net sales increased by 13% for the quarter, totaling $4.9 billion.[2] Net sales for the first quarter of the previous year were $3.9 billion.[2]

Sales losses were driven by segment losses, especially in the flat-rolled and U.S. Steel Europe segments.[2] Flat-rolled income posted losses of $57 million, a slight improvement of losses of $80 million from the first quarter of 2010.[2] U.S. Steel Europe posted $5 million in losses as compared to gains of $12 million from the first quarter of 2010.[2]

FY 2010 Annual Earnings Summary

US Steel announced net losses of $249 million for the fourth quarter of 2010.[3] Driving these losses were a decrease in both steel shipments and net sales. Shipments for Q4 FY2010 decreased by 1 percent when compared to the previous quarter, totaling 5.5 million tons.[3] Net sales for the quarter totaled $4.3 billion, a 4 percent drop from the previous quarter.[3] Despite these losses, FY 2010 net losses were $919 million less than the losses the previous fiscal year.[3]

Net losses were driven primarily by losses in the flat-rolled and U.S. Steel Europe divisions of U.S. Steel financial operations. Flat-rolled sales reflected losses of $156 million for the quarter.[3] Similarly, U.S. Steel Europe posted losses of $39 million for the quarter as well.[3]

Business Segments

US Steel has three primary operating segments: flat rolled; tubular products (which make up the primary domestic operations of the company); and U.S. Steel Europe. The domestic operations of U.S. Steel are vertically integrated, meaning that iron ore and coke, which are the primary raw materials used to create steel, are supplied by the company itself.[4] Integration helps to insulate the company from the price volatility of iron ore and coke and therefore enables the company to operate at lower costs than non-integrated producers. U.S. Steel is hoping to begin integrating its services in Europe as well, although currently US Steel Europe purchases most of its raw materials from independent suppliers.

Trends and Forces

Steel Demand Directly Correlates to International Economic Growth

Steel consumption levels correlate with economic growth and expansion. When the global economy is expanding, there is a rise in demand for steel, putting upward pressure on steel prices. When economic growth slows down, steel prices tend to fall. Economic expansion usually means that the primary end markets of the steel industry are performing well. These end markets represent the customers to whom companies such as U.S. Steel sell their products. When steel end markets are performing well, they will buy more steel to make more of their own product. In recent years, China has contributed to a resurgence in the demand for steel. Alongside this, the rest of the global economy’s steady growth has provided a stable environment for the steel industry.

The Strength of the Auto Industry Impacts US Steel's Markets

About 20% of the steel industry’s shipments are to Auto Makers. Several different types of steel products are used for automobiles including flat rolled sheet for auto bodies, bar products for suspension, drive shafts and axles as well as steel alloys for wheels and engine blocks. As time has gone by, the demand for steel has increased as the size of cars and trucks has increased. A shift to smaller, lighter, and more fuel efficient cars could reduce the demand for steel in the future. U.S. Steel has a lot of exposure to the auto industry, especially the Big Three automakers. Poor performance by these three companies could hurt U.S. Steel's revenues.

Oil, Gas and Petrochemicals

Tubular steel products are used to build pipelines and rigs. Rising oil prices have spurred exploration and the construction of oil rigs which has helped to maintain demand for steel from this industry. A strong hurricane season that causes a lot of damage to the oil industry's infrastructure also increases the demand for the steel parts that are needed for repairs. Average North American oil rig counts have a strong correlation with U.S. Steel's tubular product shipments.

The company's leading 21% market share in tubular products makes performance in this sector vital; nearly one-third of revenues come from this business unit.

Environmental Concerns May Impact Operations

The steel production industry is extremely energy intensive and is a heavy producer of greenhouse gases (GHG's). Facing increasing concern about global warming and simultaneous rising demands for energy worldwide, there has been significant legislation that now affects the steel industry.

Nucor (NUE) and the Commercial Metals Company (CMC) primarily re-melt scrap, which emits about 2/3 less carbon than competitors. Even though Nucor and other mini-mill users might gain competitve advantage relative to integrated steel players like U.S. Steel, the net effect of the Cap and Trade Bill will hurt all domestic steel players because it will incentivize production in countries without emissions caps like Brazil.[5]

U.S. Steel is very entrenched in the United States, and as an integrated steel player will likely see its already dangerously low sub-5% profit margin decline.

Steelmaking Production Trends - EAF Technology

As the quality capability of electric arc furnaces increases over time, so the producer who uses traditional iron-ore based steelmaking processes (basic oxygen steelmaking) is being increasingly squeezed by new mini-mill operators using modern EAF technology. In 1980, it was only reinforcing bar products that could be produced from ferrous scrap via the EAF production process route without technical difficulty. By 2010, almost all long products as well as many flat products (except for some galvanised; auto body and tin plate) could be produced through the electric steel making production process route[6]. Technology developments are therefore an important trend in the steel sector, threatening traditional steelmakers who use basic oxygen steelmaking especially.

Competition

What separates U.S. Steel from domestic competition is its focus on maintaining an integrated business model and its exposure to the tubular products market. U.S. Steel's tubular production services the high performing oil and gas industry. While Nucor (NUE) and Arcelor Mittal (MT), the other two major steel producers in the United States, have been busy with several acquisitions for growth, U.S. Steel has maintained a conservative acquisition strategy. The integrated business model that U.S. Steel has maintained in the United States and is now striving to achieve in Europe will help protect the company from industry wide downturns that could devastate steel companies that are exposed to raw material price fluctuations.

References

  1. History of US Steel
  2. 2.0 2.1 2.2 2.3 2.4 2.5 2.6 | US Steel Announces First Quarter Earnings
  3. 3.0 3.1 3.2 3.3 3.4 3.5 US Steel Announces Fourth Quarter Earnings
  4. stock:US_Steel_(X)/Filing/10-K/2009/F1269192 US Steel 2008 10-K Filing
  5. of Reps Passes Cap and Trade
  6. EAF technology and quality trends, 1980-2010
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki