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Must-know: End markets for US Steel on growth path

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Sep. 25 2014, Updated 9:00 a.m. ET

Outlook for U.S. Steel’s flat rolled segment

The performance of U.S. Steel’s flat rolled segment has been volatile for the past several quarters, but the segment’s outlook might indeed be brighter. The flat rolled segment supplies goods primarily to the construction and automobile industries in the North American market. The outlook for this segment is dependent on the fortunes of these end markets.

Automobile sector firing on all cylinders

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The auto industry has seen good recovery from the global recession. The seasonally adjusted annual rate (or SAAR) has been greater than $16 million for five months in a row. The SAAR removes the effect of seasonality between different months, and is a better indicator as compared to the absolute numbers.

This year also marks a fifth consecutive year of a rise in sales. The chart above shows the rising auto sales. As per estimates, the U.S. economy is expected to grow by around 3% this year. The consumer confidence index is improving and banks are confident of lending. These points argue well for the auto industry. Demand from the automobile industry is expected to be strong in the near future as well.

Construction sector showing resilience

The construction industry was the worst hit in the recession. Construction activity dipped by as much as 50%, which also made the steel industry tank. There has been a pick-up in this industry in the past several quarters. Most of the indicators of the real estate activity like new home starts, construction spends, are showing an uptrend.

The unemployment rate has come down, and a lot of younger adults are getting first time jobs. An improving job market makes people more confident about their future earnings, and thus more likely to invest in real estate. Globally, the construction industry accounts for almost half of the steel consumption. This makes the fortunes of steel companies like U.S. Steel (X), ArcelorMittal (MT), Nucor (NUE), and AK Steel Holdings (AKS) dependent on this sector. Investors can also access the steel industry through the SPDR S&P Metals and Mining ETF (XME).

The next article in the series will analyze the outlook for U.S. Steel’s tubular segment.

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