U.S. Steel Gets High Tech to Improve Tubular Pipes


U.S. Steel ( X ) recently announced its plans to partner with Surface Enhancement Technologies (SET), a part of the Lambda Technologies Group, to improve the quality of its tubular steel products. The improved tubular products would see a wider range of applications and has the potential to add significant value to U.S. Steel by increasing the shipment figures for the company in the years to come. The company competes with international steel giants like ArcelorMittal ( MT ), BaoSteel, Posco ( PKX ), Nippon Steel and ThyssenKrupp.

Our price estimate for U.S. Steel stands at $60.17 , roughly 7% ahead of its current market price.

U.S. Steel and its Tubular Steel Operations

U.S. Steel is an integrated steel producer of flat-rolled and tubular products with major production operations in North America and Europe. It is currently the tenth largest steel producer in the world with an annual raw steel production capability of 31.7 million tons.

The company's tubular division produces and sells seamless and electric resistance welded (ERW) steel casing and tubing, standard and line pipe and mechanical tubing steel products. Most of these products are sold to customers in the oil, gas and petrochemical markets. U.S. Steel has an annual production capability of 2.8 million tons of tubular steel as a part of its tubular division, which is less than 10% of its total steel production capacity.

The Agreement Will Boost the Competitiveness of U.S. Steel's Tubular Division…

U.S. Steel has been granted an exclusive permit by SET to use its patented Low Plasticity Burnishing (LPB) technology, which can improve the performance and extend service life of various tubular products. Moreover, the implementation of LPB in existing products does not require any changes to the material or design, allowing for quick and inexpensive integration of the processes.

Interestingly, LPB technology can also be used with other alloys like titanium and aluminum besides steels, which opens up additional opportunities for U.S. Steel as it can provide LPB processing services to other companies. LPB is currently in use in the aerospace, nuclear and medical industries.

… Which in Turn Will Add Substantial Value to the Company

The direct impact of this agreement would be seen as an increase in the shipment figures for U.S. Steel's tubular division in the years to come.

We had initially estimated that the division's steel shipments would grow by about 7% annually to reach just under 2 million tons by 2013. But if the improved quality of tubular steel is able to boost the annual growth figure to 9%, this could rise to 2.2 million tons by 2013. This marks a more than 5% upside for the company's stock - taking its price estimate to almost $64 implying almost 15% upside.

See our full analysis for U.S. Steel

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AA , MT , PKX , X



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