U.S. Steel Europe results better than expected
U.S. Steel Corporation (X) management had given guidance for lower 3Q14 profits for its European operations. This was due to planned outages at the plants and seasonally low demand in the European market. The 3Q14 results, however, were better than expected.
3Q14 results of U.S. Steel Europe
The previous chart shows the performance of U.S. Steel’s (X) European operations. As you can see, the earnings before interest, taxes, depreciation, and amortization (or EBITDA) came in at $52 million. This segment had a negative EBITDA of $19 million in 3Q13.
The shipments in 3Q14 were almost 15% higher than 3Q13. The average selling prices, however, dropped more than 6% over this period. The increase in EBITDA was largely a result of benefits realized under the Carnegie Way program.
Lower raw material costs
Another reason for better profits in the third quarter was lower prices for iron ore. Iron ore prices have been on a downward spiral, falling almost 40% this year.
It’s important to understand that all steel companies have not been able to realize the benefits of falling iron ore prices. Companies such as ArcelorMittal (MT) produce their own iron ore, thus not being able to reap the benefits of falling iron ore prices. Other steel companies such as Nucor (NUE) and Steel Dynamics (STLD) primarily use steel scrap for producing steel. Thus, they also have not realized the full benefit of lower iron ore prices. Please note that currently Nucor (NUE) and Steel Dynamics (STLD) form part of State Street Global Advisors (or SPDR) Standard & Poors (or S&P) metals and mining exchange-traded fund (or ETF) (XME).
Because U.S. Steel (X) operates iron ore mines in the United States, the benefit of lower iron ore prices is only visible in European operations that source iron ore from outside suppliers.
Next, we will analyze the 3Q14 performance of U.S. Steel’s (X) tubular segment.