U.S. Steel Slips to 52-Week Low: What's Pulling it Down?

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Shares of U.S. SteelX slipped to a 52-week low of $9.61 yesterday, before closing the day modestly higher at $9.68. The steel giant's shares have been hit hard this year, largely attributable to weaker-than-expected results in the first three quarters of 2015 as it is faced with several challenges.

U.S. Steel, which is in the steel-making business for more than 110 years, remains hobbled by a challenging steel market environment. The company has seen its shares decimate roughly 63% so far this year and 72% over a year. The stock is also down around 17% over a month.

What's Weighing on U.S. Steel?

U.S. Steel posted a loss in the third quarter of 2015, mostly due to a loss related to the shutdown of certain operations at its Fairfield Works plant. Adjusted loss was higher than the Zacks Consensus Estimate. Revenues tumbled year over year, and trailed expectations.

U.S. Steel, like other domestic steel makers, is struggling to cope with an influx of cheap steel imports. High levels of imports led to lower steel pricing in the third quarter, hurting U.S. Steel's Flat-Rolled segment. Its tubular business was also affected by lower energy prices.

U.S. Steel, in its third-quarter call, noted that market conditions are not improving as it had expected in the second half of 2015. High levels of imports have not only put downward pressure on steel selling prices, but also had an unfavorable impact on the rebalancing of supply chain inventories, leading to lower customer order rates in the second half.

Imports and oversupply in the industry are pressurizing steel prices, thereby hurting margins of American steel producers. A recovering economy coupled with a stronger dollar has made the U.S. an attractive market for finished steel imports. Per American Iron and Steel Institute ("AISI"), estimated year-to-date market share of finished steel import is 30%, still higher than 28% recorded for full-year 2014.

Accelerated steel exports from China in the wake of a weaker yuan are hurting the American steel industry. Weakening demand at home due to a sluggish economy has forced the country to push up steel exports to attractive overseas markets with the U.S. being a prime target market. China's steel exports swelled 27% year over year to 83.11 million tons in the first nine months of 2015, per the General Administration of Customs. The country's steel exports are expected to top 100 million metric tons in 2015.

U.S. Steel is also feeling the heat of lower oil prices , which is affecting its business in the energy market. The combined impacts of the lower oil prices and low-priced imports have forced U.S. Steel to take necessary actions including idling of a number of production facilities, resulting in the layoff of thousands of workers.

U.S. Steel, in early October, said that it is examining a potential consolidation of its North American Flat-Rolled operations and may idle its Granite City Works steelmaking operations and most finishing operations in Granite City, IL, on a temporary basis. The company has issued notices to 2,000 employees at Granite City Works. This possible consolidation reflects continued challenging market conditions including volatility in oil prices, dampened steel prices and unfairly traded imports.

Nevertheless, U.S. Steel is aggressively pursuing actions to improve its cost structure through its "Carnegie Way" program amid a difficult operating environment. The Carnegie Way initiative is expected to generate meaningful benefits in 2015, allowing the company to somewhat offset the operational challenges through the year. The company sees Carnegie Way benefits of $715 million for 2015.

U.S. Steel is a Zacks Rank #5 (Strong Sell).

Stocks to Consider

Better-ranked companies in the steel and metals space include NSK Ltd. NPSKY , Worthington Industries, Inc. WOR and Norsk Hydro ASA NHYDY . While NSK sports a Zacks Rank #1 (Strong Buy), both Worthington and Norsk Hydro hold a Zacks Rank #2 (Buy).

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

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

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