EUR 850.00 For Business Accounts Only

Morningstar | U.S. Steel's Profits Have Taken a Hit in 2019 and We See No Relief Ahead

U.S. Steel has 17 million tons of annual flat-rolled production capacity in the United States and operates a production facility in Slovakia that can produce 5 million tons of steel per year. In addition to its flat-rolled and U.S. Steel Europe reporting segments, the company operates a business unit that produces oil country tubular goods for the energy industry. U.S. Steel caters to a wide variety of other end markets, including automotive, appliances, and construction. In the automotive and appliance end markets, U.S. Steel is a major supplier to nearly all major North American manufacturers.The company produces flat-rolled steel strictly by use of blast furnaces, although management intends to add one electric arc furnace to its asset base in the coming years. As a blast furnace producer, U.S. Steel is subject to a very high degree of operating leverage and therefore tends to experience more substantial earnings volatility than most of its peers as capacity utilization rates fluctuate. In our view, replacing legacy high-cost blast furnaces with new electric arc furnaces would decrease the likelihood that U.S. Steel is squeezed higher on the industry cost curve in the years to come.Although U.S. Steel is already fully self-sufficient in procuring iron ore for its U.S. production facilities, it purchases iron ore for its Slovakian operations on the spot market. U.S. Steel purchases all of its metallurgical coal via contracts and on the spot market. For scrap metal, U.S. Steel recycles roughly half of its needs in-house and purchases the balance on the spot market.