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The Year 2016 In Review: Weakening Competition From Imports And Firming Steel Demand Outlook To Benefit U.S. Steel

The year 2016 saw a revival in the fortunes of the domestic steel industry, including U.S. Steel. Regulatory intervention from U.S. authorities helped offset the adverse impact of competition from unfairly traded steel imports on the operations of domestic steelmakers, creating a more favorable business environment going forward. In addition, President-elect Trump's policies are expected to boost steel demand in the U.S. going forward, which will benefit the likes of U.S. Steel. In this article, we will take a look back at the salient developments of the year for U.S. Steel and what next year holds for the company.

Imposition Of Antidumping Duties On Steel Imports

The domestic steel industry has suffered as a result of competition from imported steels over the past few years, which has negatively impacted both shipments and realized prices for U.S. steelmakers. Domestic steelmakers petitioned U.S. authorities to take punitive action against steel imports from several countries, alleging that these imports were priced unfairly low. In response to the domestic steel industry's petition, U.S. authorities levied antidumping duties on steel imports from a number of countries including major steel exporters such as South Korea and China. The impact of this regulatory action should be reflected in the company's results going forward. There were some indications of an improvement in the pricing environment with the easing of competition from steel imports in the third quarter, in which the U.S. Flat-rolled division reported a 12% sequential improvement in realized prices. Going forward, U.S. Steel should benefit from an improved business environment as a result of the regulatory intervention, which should be reflected in the company's realized prices.

Cost Reduction Initiatives

In response to poor business conditions over the past few years, U.S. Steel has focused on cost reduction and improving operational efficiency. The Carnegie Way, U.S. Steel's ongoing initiative to reduce operating costs and improve operational efficiency, is expected to yield $705 million worth of savings in the full year 2016. Savings realized under the Carnegie Way initiative have played an important role in propping up the company's results in previous quarters characterized by tough business conditions. The success of these cost reduction initiatives means that the company is well placed to benefit from improving business conditions going forward.

The Road Ahead

President-elect Trump has promised to continue the campaign to tackle the problem of unfair imports negatively impacting the domestic steel industry. In addition, the President-elect's plans for a $1 trillion revamp of domestic infrastructure has strengthened the demand outlook for steel going forward. This has been reflected in the rise in U.S. Steel's stock price since the presidential election in November.

X Stock Price Nov Dec 2016

(U.S. Steel Stock Price, Source: Google Finance)

Thus, the next few years will offer a far more conducive business environment for U.S. Steel than the past few. After riding out a tough period, the company management would be eagerly looking forward to next year.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for U.S. Steel

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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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