United States Steel Corp. X declared plans to defer construction of its Electric Arc Furnace (“EAF”) at Fairfield Works in Birmingham, AL. This decision reflects continued challenging market conditions in both the oil and gas and steel industries.
Oil prices slumped to an eight-year low on Dec 14, 2015. Rig counts also fell by 28, hitting a 16-year low of 709 rigs in the same week. Considering these conditions in the energy market as well as low steel prices and continued high levels of imports, U.S. Steel arrived at the decision to delay the construction of the 1.6 million net ton EAF facility until market conditions improve.
However, this setback will not affect the company’s other operations as it will continue to operate the Fairfield pipe mill, as well as its steelmaking operations in Indiana, Michigan and Pennsylvania.
U.S. Steel, in its third-quarter call, noted that market conditions are not improving per its earlier expectations in the second half of 2015. High levels of imports have not only put downward pressure on steel selling prices, but also unfavorably impacted the rebalancing of supply chain inventories, leading to lower customer order rates in the second half. Moreover, deteriorating conditions in the market for oil country tubular goods are impacting its flat-rolled and tubular businesses.
U.S. Steel currently carries a Zacks Rank #5 (Strong Sell).
Some better-ranked companies in the basic materials sector include Grupo Simec S.A.B. de C.V. SIM, Harmony Gold Mining Company Limited HMY and Richmont Mines Inc. RIC, all carrying a Zacks Rank #2 (Buy).
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