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What Factors Could Drive U.S. Steel’s European Performance?

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Nov. 23 2016, Published 4:17 p.m. ET

U.S. Steel’s performance in Europe

U.S. Steel Corporation (X) also has a presence in Europe and is among the leading flat rolled steel companies in Central Europe. Historically, Europe (VGK) hasn’t been a major contributor to U.S. Steel’s consolidated earnings. However, things changed last year.

U.S. Steel’s European operations accounted for 80% of the company’s consolidated EBITDA (earnings before interest, tax, depreciation, and amortization) in 2015.

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3Q16 performance

In 3Q16, U.S. Steel shipped 1.1 million tons of steel in Europe, a year-over-year (or YoY) rise of 8.3%. However, the segment’s shipments fell on a sequential basis. This sequential fall in shipments can be attributed to negative seasonality in Europe.

ArcelorMittal (MT) also reported fewer steel shipments in Europe in 3Q16 compared to the previous quarter. Note that Europe is MT’s biggest market, accounting for almost half of its revenue. In contrast, AK Steel (AKS) and Nucor (NUE) get most of their revenue from the United States.

Key drivers

U.S. Steel’s European operations are operating at close to 100% utilization rates, meaning that the company can’t rely on volume gains in the coming quarters. However, we’ve started to see some improvement in steel pricing in Europe. Regulators in the European Union have now joined their counterparts in the United States to impose anti-dumping duties on Chinese steel products. Trade actions coupled with rising raw materials prices should support European steel prices.

Having said that, higher coking coal prices could be a significant near-term challenge for U.S. Steel. We’ll look at this challenge later in the series. Before that, let’s see how U.S. Steel’s Tubular segment performed in 3Q16.

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