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U.S. Steel: A Tough Road Ahead As Imports, Oil Still Haunt

On Mar 1, we issued an updated research report on steel giant U.S. SteelX .

U.S. Steel swung to a big loss in the fourth quarter of 2015, hit by a hefty tax provision and lower selling prices. However, adjusted loss was much lower than the Zacks Consensus Estimate. Revenues tumbled year over year on lower shipments and pricing, but beat expectations.

U.S. Steel continued to face a difficult steel market environment in the fourth quarter. High levels of low-priced imports led to lower prices in the company's Flat-Rolled segment in the quarter. Its tubular business was also affected by lower energy prices. These headwinds were partly offset by the company's efforts to improve its cost structure through its "Carnegie Way" initiatives.

The company sees continued uncertainty across many of its end-markets in 2016 and expects lower year-over-year results in each of its segments this year. High levels of imports are expected to continue to weigh on steel prices.

U.S. Steel remains hamstrung by a challenging steel market environment. The company is still struggling to cope with an influx of cheap steel imports.

Imports and oversupply in the industry are pressurizing steel prices, thereby affecting margins of U.S. steel producers. Despite some favorable developments on the import front in the recent past, the U.S. steel industry still remains under the risk of cheaper imports in the face of a stronger dollar.

Unfairly-traded, subsidized imports are still flowing into the American market due to foreign producers' overcapacity. Finished steel imports captured a record 29% share of the domestic market in 2015.

U.S. Steel is also feeling the pinch from lower crude oil prices , which is affecting its business in the energy market. The oil price slump has led to lower drilling activities among energy companies.

The combined impacts of lower oil prices and 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 has also deferred construction of its Electric Arc Furnace (EAF) at Fairfield Works due to continued challenging market conditions in both the oil & gas and steel industries.

Nevertheless, U.S. Steel remains focused on improving its cost structure and is making good progress on its Carnegie Way program amid the challenging operating environment. The company currently expects around $250 million in Carnegie Way benefits in 2016, aided by the implementation of a number of projects.

U.S. Steel is a Zacks Rank #4 (Sell).

Other Stocks to Consider

Better-ranked companies in the steel and metals space include Norsk Hydro ASA NHYDY , AK Steel Holding Corporation AKS and Century Aluminum Co. CENX . While Norsk Hydro holds a Zacks Rank #1 (Strong Buy), both AK Steel and with Century Aluminum sport a Zacks Rank #2 (Buy).

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NORSK HYDRO ADR (NHYDY): Free Stock Analysis Report

CENTURY ALUM CO (CENX): Free Stock Analysis Report

AK STEEL HLDG (AKS): Free Stock Analysis Report

UTD STATES STL (X): Free Stock Analysis Report

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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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