Flat-rolled segment is important for U.S. Steel

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U.S. Steel’s flat-rolled operations

U.S. Steel Corporation’s (X) flat-rolled segment is the company’s largest segment. Almost two-thirds of U.S. Steel’s revenues come from flat-rolled products. Flat steel products consist of sheets and plates that are rolled from slabs, a semi-finished steel product. These products are used in a wide range of industries such as automobile, domestic appliances, shipbuilding, and construction.

flat rolled

Flat-rolled segment suffered from low profitability

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Flat-rolled segment has been the proverbial Achilles heel for U.S. Steel (X) due to this segment’s low profitability. In 2Q14, profit was only $9 per ton, while it stood at $30 in 3Q13. For several quarters, the profitability of the flat-rolled segment has been low compared to other reporting segments.

Lower profits at the flat-rolled segment were one of the reasons for U.S. Steel’s low profit margins compared to competitors such as ArcelorMittal (MT), AK Steel (AKS), and Nucor (NUE). Some of these companies are part of State Street Global Advisors (or SPDR) Standard & Poors (or S&P) metals and mining exchange-traded fund (or ETF) (XME).

Flat-rolled segment reports significant improvement in 3Q14

The above chart shows the financial performance of U.S. Steel’s flat-rolled segment. As you can see, earnings before interest, taxes, depreciation, and amortization (or EBITDA) more than doubled over 3Q13. This is significant improvement, as both shipments and average selling prices are comparable to the previous year.

Then what factors led to higher profits in the flat-rolled segment? It’s important for investors to understand whether this profitability is sustainable. In the next part, we will analyze the reasons behind the spurt in profitability of the company’s flat-rolled segment.

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