Here’s What to Look Out For As U.S. Steel Announces its Third Quarter Results

October 30th, 2017 by Trefis Team
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United States Steel

U.S. Steel (NYSE:X) will announce its third quarter results on 31st Oct ’17 and conduct a conference call with analysts the following day. [1] The company is expected to deliver strong results owing to favorable business conditions in the steel industry. Our expectation from the upcoming results are summarized below.

China, which is the world’s largest steel producer, has been unfairly dumping its cheap steel into the US economy and hurting the revenue of domestic steel producers. The stringent regulations implemented in the Chinese economy pertaining to controlling pollution has resulted in a consecutive fall in Chinese steel output since the beginning of the year. Total production was down by 3.7% in Sept ’17 compared to Aug ’16 and there are further expectations that  production would be cut by an additional 30 million tons this winter. [2]

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This move has benefited U.S. steel producers in two ways. First, the fall in supply and a strong demand environment has boosted the price of steel providing them the benefit of higher margin realizations, and second, the fall in Chinese output and increased steel prices has reduced the global import dependency on China as imports no longer remain cheap. Chinese steel exports slumped by almost 42% Y-O-Y and it is expected to fall even further going forward.  [3] Although U.S. steel import numbers have remained high recently, the impact of a fall in Chinese exports are yet to be seen in the U.S. market. This would remain beneficial for the country’s steel producers in the long run.

Higher volume of imports and the ongoing asset revitalization program by the company would probably hinder the company from taking full advantage of the favorable business environment in the steel industry. Additionally, the outcome of the ongoing Section 232 investigations into the impact of steel imports on US Security which are due in January, could have a significant impact on the U.S steel industry. We wait to see these developments taking shape and would be keeping a close track of the same.

We have a $25 price estimate for U.S. Steel’s stock, which is 7% below the current market price.

Have more questions about U.S. Steel? See the links below.

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 Conference Call Available on Company Website, U.S. Steel Newsroom [↩]
  2. Global steel output lowest since Feb. as China smog war intensifies, Reuters [↩]
  3. China’s Sep. steel exports at 5.14 mil mt, the lowest since Feb 2014, S&P Platts [↩]