US Steel (X)

US Dollar at historic weak levels makes U.S. steel significantly cheaper to the rest of the world. This is highly attractive to emerging economies that are net importers of steel, as well as strong currency regions such as Europe.

Recent significant rise in raw material costs has much less impact on U.S. Steel. Steel prices are rising, as rise in raw material costs are affecting most of their competitors who are forced to raise prices to pass on the cost. This situation only improves U.S. Steel's potential gross margin, and allows for more competitive pricing to undercut the competition while maintaining relatively healthier margins. This may offset slowing overall demand as existing buyers seek better prices.

In mid-2008 US Steel reported tremendous price increases in steel spot markets. For example, for Q2 2008 the price for flat rolled steel increased from $646/ton to $777/ton. Similarly, hot rolled coil sold for $555/ton in December 2007, whereas by July 2008 the price had increased to above $1000/ton. While US Steel's major materials (coke and iron ore) have also increased in price, these price increases are not hurting the company's profit margins for two reasons. First, the price increases for raw materials have been less than for finished steel products. Second, and more importantly, US Steel strives for vertical integration. Currently, the company's US operations are largely vertically integrated and management is trying to transform US Steel Europe to be more vertically integrated. As the global infrastructure boom continues, these two factors should help US Steel continue to improve profitability.^[1]

The RSI (a measure of relative strength among other stocks) has hit a ceiling these past few days and hasn't trended above it, and the PVT seems to be guiding lower which suggests to me that institutional investors are selling shares of X, not buying more. I would wait for a high volume breakout above $195 (actually, $196 to give some cushion for fake-outs) before buying this stock.

The company’s European operations could continue to benefit from the region's economic growth.

U.S. Steel will continue to benefit from high tubular product prices due to strong demand from the oil and gas sector.

According to IISI statistics, steel production in China and Europe has declined in Feb 08. March numbers may continue to indicate production slowdowns in these regions and elsewhere, as raw material costs are rising and demand may be falling for domestically produced steel at higher prices. Drop in domestic/local supplies in these regions could lower available supplies, providing support for higher steel prices worldwide.