What Are U.S. Steel’s Key Sources of Revenue?

-12.27%
Downside
41.03
Market
36.00
Trefis
X: United States Steel logo
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United States Steel

U.S. Steel (NYSE:X) had displayed a robust performance in 2017 after two years of realizing declining revenues. Revenues were severely impacted by an increasing share of imports in U.S. Steel’s key markets of the U.S. and Europe. Furthermore, declining oil prices exaggerated the revenue fall due to lower demand for the company’s tubular products. We believe a favorable business environment in both the U.S. and Europe will continue to drive revenue, aided by a recovery in the tubular segment due to higher oil prices.

Prices in both the U.S. and Europe saw a sharp rise as steel demand in both areas grew with improving economic conditions. Additionally, a stringent regulatory intervention aimed at discouraging unfairly traded steel imports helped negate the competition from low-priced imports to the domestic steel industries in both the U.S. and Europe to a certain extent, allowing prices to rise with improving demand conditions. Industrial production curtailments initiated in the Chinese economy to control its pollution level have also helped reduce import volume in these economies.

However, despite a favorable business environment, steel shipments from the company’s U.S. flat-rolled division did not display any growth in 2017. The stagnated shipment volume was a resultant impact of planned production outages as it embarked upon its ‘asset revitalization program,’ which is aimed at improving the efficiency, reliability, and product quality in addition to lowering production costs. The implementation of the asset revitalization program is likely to negatively impact shipment levels over the next few years as the program is expected to occur in a phased manner, stretching for another two to three years beyond 2017.

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In the upcoming year, we expect revenues to rise by 5% driven by improved pricing position in both U.S. and  Europe. Also, the U.S. tubular segment should see a further rise in shipment volume as the recent extension of oil cuts by Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC allies would continue to support oil prices and hence increase drilling activity in the U.S.

Key highlights for our revenue analysis have been outlined in our interactive dashboard.

We have a $38 price estimate for U.S. Steel which is below the market price.

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

 

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