U.S. Steel Increases Automotive Steel Capacity With Purchase Of AK Steel’s Stake In DESCO
U.S. Steel (NYSE:X) recently announced the purchase of AK Steel’s stake in Double Eagle Steel Coating Company (DESCO) for $25.2 million, which will provide a boost to the company’s automotive steel offerings. [1] U.S. Steel earlier had a 50% stake in the DESCO joint venture with AK Steel. [2] DESCO operates an electrolytic galvanizing facility located in Dearborn, Michigan, which produces sheet steel coated with free zinc or zinc alloy coatings, primarily for use in the automotive industry. The acquisition of AK Steel’s interest in DESCO’s electrolytic galvanizing plant, which has an annual production capacity of 700,000 tons, enhances U.S. Steel’s production capacity for light-weight advanced high strength steels (AHSS) for the automotive industry. This would also provide a boost to U.S. Steel’s Flat-rolled steel shipments, which have fallen due to competition from steel imports.
See our forecast for U.S. Steel’s Flat-rolled steel shipments
Investment in producing light-weight steel solutions for the automotive industry is essential for steel companies to maintain the status of steel as the preferred material in the automotive industry.
- Steel is the dominant material in automobile manufacturing, accounting for roughly 60% of the weight of an average automobile. [3]
- Given increasingly stringent fuel efficiency regulations, automobile manufacturers have been looking at ways to make their cars lighter. This has opened the door for other materials such as aluminum to eat away at steel’s market share. As per a study by Ducker Worldwide, aluminum content in cars in North America is set to increase to 19% of a car’s curb weight by 2025, from 10.4% in 2015. [4]
- Major steel companies such as U.S. Steel are investing heavily to produce advanced high-strength steels, in order to maintain steel’s position as the material of choice for the automotive industry. Advanced high strength steels have minimum tensile strengths of 500 to 800 Megapascals (MPa). [5] These steels offer significant weight savings as compared to traditional steels of comparable strengths. Advanced high strength steels also offer weight reductions at competitive prices, as compared to other materials, as shown in the figure below. Thus, the purchase of AK Steel’s stake in DESCO will help boost the competitiveness of U.S. Steel’s automotive offerings.
- Can U.S. Steel Stock Return To Pre-Inflation Shock Highs?
- What’s Happening With U.S. Steel Stock?
- Will U.S. Steel Stock Continue To Outperform Despite Economic Headwinds?
- Is U.S. Steel Set For Tough Q3 Results?
- Why We Are Cutting Our Price Estimate For U.S. Steel Stock
- How Will U.S. Steel Stock Fare In An Uncertain Economy?
(Source: Global Steel 2014, Ernst & Young)
See the links below for more information and analysis:
How U.S. Steel Could Be Impacted By The Potential Imposition Of Anti-dumping Duties On Steel Imports
How A Strong Dollar Impacts Steel Companies
The Potential Impact Of The Reintegration Of U.S. Steel Canada On U.S. Steel’s Stock Price
Trends In Steel Usage In The Automotive Industry
Notes:- United States Steel Corporation Announces Purchase Of DESCO, U.S. Steel News Release [↩]
- U.S. Steel’s 2014 10-K, SEC [↩]
- New steels fight aluminum to oust heavy metal from cars, Automotive News [↩]
- 2015 North American Light Vehicle Aluminum Content Study, Ducker Worldwide [↩]
- Advanced High Strength Steels, U.S. Steel [↩]