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Would Clinton’s Energy Policy Sound a Death Knell for U.S. Steel?

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Clinton’s energy policy

Hillary Clinton, like Barack Obama, is a big advocate of renewable energy. The Democratic candidate plans to have 500 million solar panels by 2020 if she’s elected as the US President. On the other hand, Donald Trump claims that he would throw his weight behind coal and shale gas. The question is this: What do the two candidates’ energy policies have to do with U.S. Steel (X)?

Tubular operations

U.S. Steel has enjoyed an impeccable market-leading position in the North American tubular goods market. Demand for tubular goods, which are used by the energy sector, was growing at a steady pace until 2014. Tenaris (TS), Allegheny Technologies (ATI), and Nucor (NUE) also supply the energy sector (XLE).

U.S. Steel’s Tubular segment has historically been its most profitable segment. However, the segment has generated massive losses during the past few quarters. It generated EBITDA (earnings before interest, tax, depreciation, and amortization) of -$564 per ton in 3Q16—a substantial loss on a per-ton basis. The segment’s shipments also fell from 450,000 tons in 4Q14 to 103,000 tons in 3Q16. Sagging exploration activity has meanwhile become the enemy of U.S. Steel’s Tubular segment.

Outlook under new President

Trump’s apparent support of nonrenewable energy would likely be positive for U.S. Steel, and the Republican candidate’s support for the Keystone XL pipeline, of course, could boost demand for U.S. Steel’s tubular products. However, it’s important to remember that last year, Republicans blocked an amendment that required only US-made steel be used in the pipeline.

Based on the two candidates’ energy policies, then, the demand for tubular goods could remain subdued if Clinton wins. Also, if Clinton continues the current administration’s bearish outlook on coal, steelmakers like U.S. Steel and AK Steel (AKS), which use coal as a raw material, could be negatively impacted.

In the next part, we’ll explore how the two candidates’ foreign policies could impact U.S. Steel.

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