Why metal service centers are important for U.S. Steel

In the previous part of this series, we discussed U.S. Steel Corporation’s (X) new management structure. The new structure will go into effect on January 1, 2015. Geoff M. Turk will serve as the vice president of service center solutions. Turk joined U.S. Steel in April 2014. Prior to this, he spent 24 years at Caterpillar Inc. (CAT). Let’s first understand the role of metal service centers.

A metals service center acquires primary metals like carbon steel, aluminum, stainless steel, brass, copper, titanium, and alloy steel from metals producers and processes them to customer specifications. These service centers act as a bridge between metal producers and end consumers. The above chart shows the role of metal service centers. Reliance Steel and Aluminum (RS) is the largest metal service center in North America. It acts as the distributor for steel companies such as ArcelorMittal (MT), Nucor (NUE), and AK Steel (AKS). Currently, Reliance Steel and Aluminum is a top holding of the Standard and Poors depositary receipt (or SPDR) S&P Metals and Mining exchange-traded fund (or ETF) (XME).

Metal service centers account for about one-fifth of U.S. Steel’s total revenues. This makes these centers an important customer segment for the company. Apparently, service centers like Reliance Steel and Aluminum have increased steel imports. During its third-quarter earnings call, Reliance Steel and Aluminum’s management highlighted that it is not getting the desired pricing from U.S. Steel producers.

With a new management structure, U.S. Steel (X) can focus more on the demand from metal service centers.

U.S. Steel has announced that James E. Bruno will be the vice president of automotive solutions. Before joining U.S. Steel, Bruno worked with TRW Automotive for 20 years. It’s a very interesting development that U.S. Steel has appointed an automotive industry expert to lead its steel operations. But this is not without reason. Move to the next part to learn more.