US Steel’s Tubular Segment Feels the Heat as Rig Count Falls



US Steel’s tubular segment

Previously, we discussed the performance of US Steel’s (X) flat-rolled segment. In this part, we’ll analyze the 1Q financial performance of US Steel’s tubular segment. This segment provides steel products to the energy sector (XLE). These products are also collectively known as oil country tubular goods (or OCTG). Lower crude oil prices have negatively impacted the demand for OCTG products. A higher level of imports, especially from Korea (EWY), is another headwind the OCTG segment faces.

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Higher imports

South Korea accounts for almost half of OCTG imports in the US. Interestingly, almost all of the OCTG that is produced in Korea is exported to the United States. Korean exports have refused to die down, even after an anti-dumping duty was imposed last year. Korea-based POSCO (PKX) is the fourth largest steel company globally.

Profits dwindle

The previous chart shows the 1Q financial performance of US Steel’s tubular segment. As you can see, shipments have declined more than 50% as compared to 4Q14. Tenaris (TS), which is another leading supplier of tubular products, reported a drop of 17% over this period.

The US rig count is also down by more than half since November. Energy companies like ConocoPhillips (COP) and Suncor Energy (SU) have reduced their capex budgets for 2015, which negatively impacts the demand for tubular products.

The earnings before interest, taxes, depreciation, and amortization (or EBITDA) of US Steel’s tubular segment was $18 million in 1Q, down 87% from 4Q14. The segment is expected to be under pressure in coming quarters as well. However, average selling prices of tubular products increased marginally in 1Q. This can be seen in the previous chart.

In the next part, we’ll analyze the performance of US Steel’s European operations.


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