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Investment Overview for U.S. Steel (NYSE:X)
Below are key drivers of U.S. Steel's value that present opportunities for upside or downside to the current Trefis price estimate for U.S. Steel:
U.S. Flat Rolled Steel division
- U.S. Flat Rolled Products EBITDA Margin: The EBITDA Margin for U.S. Flat Rolled Products division declined from around 6.3% in to 2007 to reach -12.9% in 2009. Margins recovered in 2010 and 2011 to get to 1.6% and 6.9%, respectively. In 2012 our calculated EBITDA margins stood at 6.4% We expect margins to keep improving and reach 7.6% by end of our forecast period. If the division's margins don't improve as much as we currently anticipate and reach 6.5% by the end of the Trefis forecast period, then this would represent a downside of almost 35% to the Trefis price estimate.
- U.S. Flat Rolled Products Average Price per tonne: The average price per tonne of flat-rolled products consistently increased till 2011 except for 2009 as prices slumped due to recession. In 2012, it decreased slightly. We expect this figure to gradually increase to $830 by end of our forecast period. If steel demand in future years is stronger that what we estimate, it could push prices up by as much as 3% annually taking it close to $920 per tonne by the end of the Trefis forecast period. This represents an upside of 12% to the Trefis price estimate.
For additional details, select a driver above or select a division from the interactive Trefis split for U.S. Steel at the top of the page.
U.S. Steel is an integrated steel producer of flat-rolled and tubular products with major production operations in North America and Europe. According to the latest World Steel Association's statistics, U.S.Steel is the tenth largest steel producer in the world.
U.S. Steel has an annual raw steel production capability of 29.3 million net tons, of which 24.3 million tons were from North America and 5.0 million tons from Europe. An integrated producer uses iron ore and coke as primary raw materials for steel production. U.S. Steel's Tubular division's annual production capability is 2.8 million tons.
U.S. Steel is also engaged in other business activities, most of which are related to steel making operations, including the production of coke and iron ore pellets, transportation services (railroad and barge operations), real estate operations, and engineering consulting services.
Flat Rolled products refer to the steel sheets and plates that are made by rolling processes. The various categories of the Flat Rolled products include: hot rolled sheets, cold rolled sheets, coated sheets, semi finished bars and plates, and tin mill products.
U.S. Flat Rolled division is the most valuable division for the firm for the following reasons:
Largest revenue generator amongst other divisions
The U.S. Flat Rolled division generated revenues of $14.5 billion of the total $21.2 billion in 2011 and is expected to generate revenues in excess of $16 billion in 2015 as a result of the economic recovery and increased demand.
Highest number of sales in terms of Volume
The Flat-Rolled segment has an annual production capacity of 24.3 million tons and iron ore pellet capacity of 25.0 million tons. The production in 2012 was 19.1 million tons, compared to 4.5 million tons in the European Steel segment.
Overcapacity in the steel industry
The global steel industry has been facing the issue of over capacity. Most of the installations have been running at 70% of their installed capacity even as many manufacturers closed down or cut capacity at their mills. As the global economic downturn took place, the steel industry was one of the worst hit and the demand has not picked up yet. However, as economic growth picks up, we expect demand to improve.
Increasing demand from the developing markets
A number of manufacturing units are being set up in developing countries like India, Thailand, China, and South Korea, primarily due to lower labor costs in these countries. Several of these countries due to rapid growth are driving the increased demand in steel. Major players in the steel industry are expecting to see a huge rise in demand in South East Asia within the next few years. This growth in demand should help benefit the steel industry in terms of pricing, revenues and margins.
Higher fuel costs will increase the production cost of steel
The cost of crude oil has fluctuated a lot in the recent past from a high of $150 per barrel to a low of $35 per barrel in 2009 with close to $90 per barrel in 2012. As the global economy stabilizes and demand rises, raw materials that go into the production of steel for instance crude oil are expected to rise. This rise in fuel prices will lead to higher production costs, forcing companies to increase prices for steel products.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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