U.S. Steel’s Q2 2017 Earnings Review: Favorable Business Conditions Translate Into Earnings Improvement

July 27th, 2017 by Trefis Team
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United States Steel

U.S. Steel reported a considerable improvement in its second quarter earnings driven by improved business conditions for steel makers in the U.S. and Europe.

The improved business conditions were reflected in the sharp increases in steel prices reported by both the U.S. Flat-rolled and U.S. Steel Europe divisions. The firming of steel prices in both the U.S. and Europe is largely due to regulatory intervention aimed at discouraging unfairly traded steel imports. The imposition of antidumping duties on unfairly traded steel imports over the course of 2016 helped negate the competition from these low-priced imports to the domestic steel industries in both the U.S. and Europe, allowing prices to rise with improving demand conditions. However, despite the favorable demand conditions, shipments from the U.S. Flat-rolled division remained subdued as a result of a lowering of production levels amid the company’s ongoing asset revitalization program. The asset revitalization program, which is aimed at improving the reliability and efficiency of the company’s facilities, entails higher capital expenditure and lower production levels while the company upgrades its production facilities. While the U.S. Flat-rolled and U.S. Steel Europe divisions reported favorable results, the company’s U.S. Tubular Steel division reported an operating loss as oil and gas drilling activity still remains fairly subdued.

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Going forward, the company management stated its intent to continue to lobby the federal government to take action against unfairly traded steel imports. [1] However, though the business environment for steel companies is quite favorable as a result of regulatory action taken by the government, U.S. Steel’s ongoing asset revitalization program is likely to weigh on the U.S. Flat-rolled division’s production levels in the near term.

Thus, U.S. Steel is unlikely to take full advantage of favorable business conditions in the coming quarters as it continues to upgrade its production facilities.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for U.S. Steel

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Notes:
  1. U.S. Steel’s Q2 2017 Earnings Call Transcript, Seeking Alpha [↩]