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What Do Current Market Dynamics Suggest for U.S. Steel’s Guidance?

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Dec. 4 2020, Updated 10:52 a.m. ET

U.S. Steel’s guidance

While Nucor (NUE) and Steel Dynamics (STLD) provide quarterly earnings guidance, U.S. Steel Corporation (X) gives annual EBITDA[1. earnings before interest, tax, depreciation, and amortization] guidance.

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EBITDA guidance

Given the increase in iron ore and scrap prices, as well as U.S. Steel’s exposure to quarterly coal contracts in Europe, the company expects higher raw material costs to be a $1 billion headwind in fiscal 2017 compared to fiscal 2016. 

U.S. Steel noted that it is working on an “asset revitalization plan,” and that investment in this program would be $200 million higher in 2017 compared to 2016. Despite these cost headwinds, U.S. Steel expects to post EBITDA of $1.3 billion in 2017.

Commodity prices

U.S. Steel’s 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 in 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.

Lower coal prices could provide an upside to U.S. Steel’s 2017 guidance, although rising iron ore prices could be a drag on the company’s Europe earnings. Also, improvement in energy sector’s steel demand could positively impact U.S. Steel’s 2017 earnings. US steel prices have shown strength over the last couple of weeks with steelmakers (MT) like AK Steel (AKS) announcing a fresh round of price hikes.

In the next article, we’ll see what analysts are projecting for U.S. Steel’s 2017 earnings.

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