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Can U.S. Steel Generate Positive Cash Flows in 2016?


Aug. 16 2016, Updated 9:04 a.m. ET

Positive free cash flows

So far in this series, we’ve already looked at steel companies’ 2Q16 earnings. But given the current challenging situation, the market (DIA) is more interested in cash flows.

Generating negative free cash flow could lead to cash burn. As a result, companies might have to borrow to fund their deficits, and negative free cash flow will only make things worse in the current market scenario.

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U.S. Steel

U.S. Steel (X) posted positive free cash flows of $131 million in 2Q16. We should note that this is the first quarter since 4Q14 that U.S. Steel has posted positive free cash flows. The company is looking to generate positive free cash flows in fiscal 2016. According to U.S. Steel, it would realize $400 million of working capital release in fiscal 2016. Notably, the company expects to bring down its working capital, despite higher account receivables due to increases in revenue.

In 1H16, U.S. Steel generated positive free cash flows of $92 million. The company shouldn’t face many hassles in generating positive free cash flows in 2016, given the current market scenario.

Other steel companies

Thanks to the increase in steel prices and steel companies’ relentless efforts to control their cash flows, all the companies we’re covering in this series generated positive free cash flows in 2Q16. Nucor (NUE) and Steel Dynamics (STLD) respectively generated free cash flows of $160 million and $122 million in 2Q16. ArcelorMittal (MT) also generated free cash flows of $348 million in 2Q16. MT also expects to be free cash flow positive in fiscal 2016.

AK Steel (AKS) generated free cash flows of $111 million in 2Q16. The company is utilizing its cash flows to repay its debt.

To get a diversified exposure to the materials sector, you might also consider the Materials Select Sector SPDR ETF (XLB). Metal producers currently make up ~13.3% of XLB’s portfolio.

In the next and final part of this series, we’ll see what different steel companies are doing to strengthen their respective balance sheets.


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