uploads///part  us steel octg

Why U.S. Steel’s Road to Recovery Could Be Bumpy



U.S. Steel

U.S. Steel Corporation (X) has three segments: Flat Rolled, Europe, and Tubular. The company’s Tubular segment produces OCTG (oil country tubular goods) that are used in the energy sector.

OCTG imports registered a four-fold year-over-year (or YoY) rise in March 2017. This was the sixth consecutive month in which we saw a steep rise in the company’s OCTG imports. Prior to this rise, OCTG imports saw a falling trend as demand nosedived following a steep fall in energy prices.

Article continues below advertisement

Demand has improved

During its 1Q17 earnings call, Nucor (NUE) expressed optimism about the energy sector’s steel demand (XME). According to Nucor, the US rig count has doubled compared to its previous year’s low. 

John Ferriola, Nucor’s CEO, added, “[The] amount of steel consumed per rig has doubled since about 2013. So, when you have a situation where you’re doubling the number of rigs and the amount of steel consumed has doubled, that’s a good situation for us.” However, he also expressed concern over rising OCTG imports, particularly from South Korea.

While the United States has recently raised duties on its imports of OCTG products from South Korea, the markets fear that even this won’t be enough to fend off imports.

Impact on U.S. Steel

U.S. Steel’s Tubular segment has been bleeding for the last several quarters due to lower demand. Though the segment’s performance improved on a sequential basis in 1Q17, its road to recovery could be bumpy for it given higher imports.

In the next article, we’ll look at the outlook for US steel prices (AKS) (MT).


More From Market Realist