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What Lies Ahead for U.S. Steel Europe?

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Operations for U.S. Steel Europe

U.S. Steel (X) has operations in Central Europe. ArcelorMittal (MT) gets more than half of its revenues from Europe. In contrast, AK Steel (AKS) and Nucor (NUE) are primarily US-based steel companies (XME). Previously in this series, we saw how U.S. Steel’s US operations performed in 2Q17. In this part, we’ll see how U.S. Steel Europe performed in 2Q17 and what lies ahead for the segment.

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2Q17 performance

  • In 2Q17, U.S. Steel Europe shipped 1.16 million tons of steel in Europe compared to 1.11 million tons in 1Q17 and 1.12 million tons in 2Q16.
  • The segment’s average selling prices (or ASP) rose to $620 per ton in 2Q17 compared to $594 per ton in 1Q17 and $485 per ton in 2Q16.
  • Despite higher shipments and ASPs, the segment’s EBITDA (earnings before interest, tax, depreciation, and amortization) fell in 2Q17. U.S. Steel Europe posted EBITDA of $72.0 million in 2Q17 compared to $106.0 million in 1Q17 and $75.0 million in 2Q16. The company attributed lower earnings to FIFO (first-in, first-out) inventory adjustments.

Guidance

The U.S. Steel Europe segment expects to post EBITDA of $400.0 million in fiscal 2017. The guidance implies EBITDA of $222.0 million in the second half of the year. We should note that operations for the U.S. Steel Europe segment are more prone to volatility in raw material prices than US operations. While annual contracts are the general norm in the United States, European steel companies typically buy iron ore and coal under spot or quarterly contracts.

Asset revitalization and 2017 EBITDA guidance were the key talking points in U.S. Steel’s 2Q17 earnings call. We’ll look at this in more detail in the next part of this series.

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