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U.S. Steel (X) at 52-Week Low: What's Pulling it Down?

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Shares of U.S. SteelX slipped to a 52-week low of $14.12 yesterday, before recovering a bit to close the day at $14.69. The steel giant's shares have been hit hard this year, largely attributable to weaker-than-expected results in the first two quarters of 2015 as it is faced with a number of challenges.

U.S. Steel, which is in the steel-making business for more than 110 years, remains hamstrung by weak steel market fundamentals. The company has seen its shares plummet roughly 45% so far this year and 61% over a year. The stock is also down around 28% over a month.

What's Weighing on U.S. Steel?

U.S. Steel, like other domestic steel makers, is struggling to cope with a surfeit of low-priced imports. High levels of imports led to lower steel pricing and volumes in the company's Flat-Rolled segment in second-quarter 2015. U.S. Steel's Tubular segment also remains challenged by weak pricing due to imports.

Surging steel imports and oversupply in the industry are pressurizing prices, thereby hurting margins of American steel producers. Domestic steel makers are struggling to defend their turf from a flood of cheap imports from foreign manufacturers, especially from China and South Korea. A recovering economy coupled with a stronger dollar has made the U.S. a hotspot for overseas steel makers.

Per American Iron and Steel Institute ("AISI"), finished steel imports rose 6% year over year in the first eight months of 2015, based on the Commerce Department's most recent Steel Import Monitoring and Analysis ("SIMA") data. Estimated year-to-date market share of finished steel import is 30%, higher than 28% recorded for full-year 2014.

Moreover, fears of accelerated steel exports from China in the wake of a weaker yuan are haunting the U.S. 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. Steel exports from China shot up around 25% year over year to 9.73 million tons in August, per data released by the General Administration of Customs.

U.S. Steel is also feeling the heat of lower oil prices . The oil meltdown is causing pain for companies across a broad spectrum of industries including steel. Several energy companies are dialing back drilling plans in the face of the oil price slump, thereby affecting demand for steel in the energy market.

The combined impacts of the oil price drop and cheap 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, last month, said that it is planning to permanently shutter all its blast furnace and related steelmaking operations, along with most of the flat-rolled finishing operations at its Fairfield Works facility in Fairfield, AL. Operations at the plant will be permanently stopped on or after Nov 17, 2015, affecting around 1,100 workers.

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

U.S. Steel currently sports a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the basic materials sector include NN Inc. NNBR , NSK Ltd. NPSKY and ThyssenKrupp AG TYEKF with all holding 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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