U.S. Steel’s 4Q16 performance
Steel companies’ earnings are sensitive to changes in steel prices. Spot HRC (or hot roll coil) prices, which are often seen as a benchmark for other product categories, witnessed huge swings in the quarter.
Volatile steel prices
According to the data compiled by Metal Bulletin, in October 2016, HRC prices fell to $470 per ton levels. However, we saw a significant recovery in prices in November after Trump’s election and spot HRC prices reached $540 per ton levels in the month. Steel prices continued their uptrend in December and spot HRC prices ended 2016 in the ballpark of $600 per ton. Let’s see how volatile steel prices affected U.S. Steel’s 4Q16 financial performance.
4Q16 average selling prices
U.S. Steel’s US Flat Rolled operations reported average selling prices (or ASP) of $692 per ton in 4Q16. In comparison, the company reported ASP of $718 per ton in 3Q16 and $642 per ton in 4Q15. We should remember that the full impact of higher steel prices in December 2016 won’t be visible in U.S. Steel’s 1Q17 earnings due to the lag in impact. Other steelmakers (AKS) (XME) including Nucor (NUE) and ArcelorMittal (MT) could also benefit from higher contract and lag pricing in 1Q17.
U.S. Steel’s Europe operations posted ASP of $484 per ton in 4Q16 as compared to $503 per ton in 3Q16. While the company’s 4Q16 ASP in euros was more or less similar to the previous quarter, the euro’s weakness against the dollar negatively impacted the ASP in dollar terms.
In the next article, we’ll see how sequentially lower steel prices affected U.S. Steel’s 4Q16 profitability.