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Why US Steel increased despite a loss in the second quarter

Part 5
Why US Steel increased despite a loss in the second quarter (Part 5 of 10)

Overview: Key takeaways from US Steel Europe’s 2Q results

U.S. Steel Europe

U.S. Steel (X) reports the European operations under a separate segment. The key difference at the European segment is the high capacity utilization, which stands at more than 90% compared to the less than 80% utilization rate seen in the North American operations.

europeEnlarge Graph

Modest improvements in profits

The European operations reported improvements in shipments and profitability over last quarter. The income from operations increased by 15% over last quarter and stood at $ 38 million. This was largely led by a reduction in operating costs, which decreased by $24 per ton. The shipments also improved marginally to reach 1.05 million tons. This can be verified from the previous chart.

Why management expects the third quarter results to be lower at USSE

U.S. Steel management expects the next quarter results at U.S. Steel Europe (or USSE) to be below the second quarter numbers. This is due to planned outages at the plants and seasonally low demand in the market it operates. Also, there’s the risk of spillover from the Ukraine crisis on the European economy at large. The cost of natural gas, which is a key raw material in steel making, can go up in case of further escalation of tensions in that region.

We have seen improved performance in all segments of U.S. Steel apart from the flat rolled segment, which also was due to the impact of adverse weather earlier this year. In the next section we’ll look at the  U.S. Steel Corporation transformation to restore the once iconic stature of the company. It’s important to note that U.S. Steel was once the largest steel company globally. Today, the position is held by ArcelorMittal (MT). Even in American markets U.S. Steel is behind Nucor (NUE). Apart from the companies listed above, Reliance Steel & Aluminum (RS) and the SPDR S&P Metals and Mining ETF (XME) can also be considered to gain exposure to the steel industry.

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