Why US Steel increased despite a loss in the second quarter

Part 4
Why US Steel increased despite a loss in the second quarter (Part 4 of 10)

Why the tubular segment is the most lucrative for US Steel

Tubular segment at U.S. Steel

As we discussed before, the tubular segment supplies the oil and gas industry. With shale boom and rising oil production in the U.S., this segment has remained the most profitable for U.S. Steel Corporation (X). Now, we’ll look at the performance of this key segment.

tubularEnlarge Graph

Tubular segment results

The total shipments in the tubular segment increased 8% over the first quarter to reach 449 thousand tons. The cost per ton fell by almost $50 per ton. This led to the profit per ton nearly doubling to reach $105 per ton. The operating profit generated by the tubular segment was more than the combined profit generated by the flat rolled and European operations. The key point is that tubular sales account for only around 15% of the total sales for U.S. Steel. As a result, the tubular segment remains the most valuable segment for U.S. Steel Corporation. Next, we’ll look at trends in profitability of the tubular segment compared to other segments.

The most profitable segment in U.S. Steel

The previous chart shows the trend in profit generated per ton by various segments. Traditionally, this segment has been the most profitable segment of U.S. Steel. While the other segments have seen loses in the past, tubular operations have largely remained profitable. Last quarter, the tubular segment generated a profit per ton of $105 which was far more than the $36 per ton at European operations and $9 at the flat rolled segment.

U.S. Steel (X) has its strength is tubular steel. It’s the largest supplier in the North American market. Every steel company has its individual area of strength. For Nucor (NUE) it’s the construction industry, where it’s the largest supplier. ArcelorMittal (MT) has its expertise in making steel for the automotive industry. It’s important to note that apart from the companies listed above, investors can also access steel industry through Reliance Steel & Aluminum (RS) and the SPDR S&P Metals and Mining ETF (XME).

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