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What’s the Upside and Downside to U.S. Steel’s 2017 Guidance?

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U.S. Steel’s 2017 guidance

While Nucor (NUE) and Steel Dynamics (STLD) provide quarterly earnings guidance, U.S. Steel (X) and ArcelorMittal (MT) give annual EBITDA[1. earnings before interest, tax, depreciation, and amortization] guidance. Wall Street analysts closely follow U.S. Steel’s guidance.

Over the last year, we’ve seen Wall Street rerate U.S. Steel after the company revised its EBITDA guidance. So, it’s crucial for U.S. Steel investors to understand the possible upsides and downsides to the company’s 2017 EBITDA guidance before making any decisions.

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Upside

U.S. Steel’s (X) guidance assumes constant commodity prices, which holds true for steel and raw material prices. According to U.S. Steel, the company’s 1Q17 Europe coal contracts were settled at roughly $100 per ton higher than in 4Q16. Although we don’t have the absolute figure for the company’s coal costs, the same pricing is embedded into the company’s fiscal 2017 guidance.

U.S. Steel buys coal under quarterly contracts in Europe. Now, as coking coal prices have fallen over the last couple of months, it would be safe to assume that U.S. Steel’s coal costs in the next few quarters could be lower than in 1Q17.

Also, we’ve seen some moderation in steel scrap prices in the United States (DIA) (DOW). In our view, lower raw material pricing could be an upside to U.S. Steel’s fiscal 2017 EBITDA guidance.

Downside

However, the biggest risk to U.S. Steel’s 2017 EBITDA guidance would come from any correction in steel prices. For now, steel prices in the US have been stable after the steep gains in late 2016, so a correction in raw material prices could impact steel prices as well.

Nonetheless, U.S. Steel’s 2017 guidance looks much more reasonable than in the last couple of years, when the company’s guidance embedded most known positives.

U.S. Steel’s actual earnings would depend on steel and raw material prices. Please read How Do US Steel Industry Indicators Look amid 4Q16 Earnings? to analyze recent trends in steel prices. You can also visit our Steel page for ongoing updates on this industry.

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