On Dec 28, we issued an updated research report on steel giant U.S. Steel X.
U.S. Steel logged a loss in third-quarter 2015, mostly due to a loss related to the shutdown of certain operations at its Fairfield Works plant. Adjusted loss was higher than the Zacks Consensus Estimate. Revenues tumbled year over year, and trailed expectations.
U.S. Steel, in its third-quarter call, noted that market conditions are not improving as it had expected in the second half of 2015. High levels of imports have not only put downward pressure on steel selling prices, but also had an unfavorable impact on the rebalancing of supply chain inventories, leading to lower customer order rates in the second half.
U.S. Steel remains besieged by a challenging steel market environment. The company is struggling to cope with an influx of low-priced steel imports. High levels of imports led to lower steel pricing in the third quarter, hurting U.S. Steel’s Flat-Rolled segment. Its tubular business was also affected by lower energy prices.
Imports and oversupply in the industry are pressurizing steel prices, thereby affecting margins of U.S. steel producers. A recovering economy coupled with a stronger dollar has made the U.S. an attractive market for finished steel imports.
Accelerated steel exports from China in the face of a weaker yuan are hurting the American steel industry. China’s steel exports swelled 22% year over year to 101.7 million tons in the first eleven months of 2015, per the General Administration of Customs.
U.S. Steel is also feeling the pinch from the slump in crude oil prices, which is affecting its business in the energy market. The combined impacts of the lower oil prices and low-priced imports have forced the company to take necessary actions including idling of a number of production facilities, resulting in the layoff of thousands of workers.
Nevertheless, U.S. Steel is aggressively pursuing actions to improve its cost structure through its “Carnegie Way” program amid a difficult operating environment.
U.S. Steel is a Zacks Rank #5 (Strong Sell).
Stocks to Consider
Better-ranked companies in the basic materials space include Rare Element Resources Ltd. REE, Coeur Mining, Inc. CDE and Nevsun Resources Ltd. NSU with all holding a Zacks Rank #2 (Buy).
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