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U.S. Steel’s strategic moves to aid long-term profitability

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Nov. 20 2020, Updated 4:59 p.m. ET

Strategic moves by U.S. Steel

You have seen previously that U.S. Steel Corporation (X) has embarked upon a transformation exercise called Carnegie Way. The exercise is aimed at restoring the company’s long-term profitability. Recently, U.S. Steel has taken certain strategic steps in this direction. Let’s now look at the following moves:

  • U.S. Steel has decided not to proceed with an expansion of its iron ore pellet operations in Minnesota.
  • U.S. Steel has decided to forgo further development of its carbon alloy facilities at the Gary works plant.
  • U.S. Steel has decided to deconsolidate the operations of U.S. Steel Canada from the consolidated results of the company.

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These moves to help U.S. Steel in the long term

U.S. Steel expects its pro forma net income to increase by $0.16 per diluted share for the first half of 2014 as a result of deconsolidation of Canadian operations. The positive impact of this move will be visible in the coming quarters.

Since the price of iron ore has fallen by more than 45% this year, it would make sense for U.S. Steel to procure it from third parties. The company has thus decided not to invest further in its iron ore facilities.

ArcelorMittal (MT) has grown its mining operations over the years to become the fourth largest iron ore company. Low iron ore prices led to lower profitability in ArcelorMittal’s mining segment. AK Steel (AKS) also has mining operations through its joint venture with Magnetation.

Mini-mills like Steel Dynamics (STLD) mainly use steel scrap to produce steel. It makes them less exposed to iron ore prices. Currently, Steel Dynamics is part of the Standard and Poors depositary receipt (or SPDR) S&P Metals and Mining exchange-traded fund (or ETF) (XME).

Let’s now look at the new management structure that U.S. Steel Corporation (X) has announced.

 

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