U.S. Steel (
) competes with international steel makers like ArcelorMittal
), BaoSteel, Posco (
), Nippon Steel and ThyssenKrupp. U.S. Steel's 2010 performance in
terms of total shipments and raw steel capacity utilization rates
improved compared to the very low levels of 2009, but the
results were still low by historical standards. We except steel
producers like U.S. Steel to show a gradual improvement as the
economy recovers however excess capacity and rising production
costs will provide headwinds.
We currently have a
Trefis price estimate of $60.17 for U.S. Steel's stock
, ahead of the current market price of $56.30.
For 2010, the company's operating income from North American
Flat-rolled segment rose by over $1.1 billion over 2009, as it
realized benefits of higher prices, volumes and utilization rates
and lower energy costs. But these benefits were partially offset by
higher raw materials costs and higher spending for facility repairs
and maintenance. Overall these are signs that the global market is
headed towards recovery, although at a slow pace.
We expect U.S. Steel to see modest growth in prices for its
steel products in the coming years, as a result of excess capacity
in steel industry and rising steel production costs. While we
anticipate the average price will reach near $740 by the end of our
forecast period, Trefis members predict the average price per tonne
will reach closer to $800, implying an upside of 3% to our price
estimate for X stock.
Steel Industry Faces Excess Capacity
The steel industry has been facing the problem of overcapacity
for some time now. Most of the steel mills have been running at 70%
capacity. With already low profit margins, it is unlikely that
prices will fall any further. At the same time, we do not expect
prices to increase sharply due to spare capacity.
At the end of 2009, China's crude steel production capacity was
pegged at 700 million tons, but recorded an output of 567.84
million tons.. In response to the steel industry's production
overcapacity, China was prompt in imposing a three-year ban in 2009
on applications to expand production or start new projects.
Rising Steel Production Costs
The fuel price rise hurt the steel industry badly as the
production costs of iron-ore and steel increased considerably as
fuel prices increased in late 2008. Moreover, the companies faced
major losses as they had to lower the prices to clear inventory in
a scenario of falling demand for steel. Prices of iron ore are
expected to increase with the cost of coal and other fuels that are
used in mining and refining the ore, as global industrial energy
demand is expected to rise.
complete analysis for U.S. Steel's stock is here