U.S. Steel Corporation
In this part, we’ll discuss U.S. Steel Corporation’s (X) medium-term growth drivers. The company is investing ~$2.0 billion under its asset revitalization plan. According to U.S. Steel Corporation, its slab production capacity is expected to increase by 1 million tons by 2020 from the current level of 10 million tons. By 2020, U.S. Steel Corporation expects to add $275 million–$325 million to its 2016 baseline EBITDA (earnings before interest, tax, depreciation, and amortization)—assuming constant market factors. We could see a structural improvement in U.S. Steel Corporation’s earnings after the asset revitalization plan.
Along with these incremental tons, U.S. Steel Corporation is also expected to benefit from shipments from its Granite City facility. U.S. Steel Corporation announced the restart of the facility in March after President Trump announced the Section 232 tariffs. One of AK Steel’s (AKS) flat-rolling plants is still idle.
Infrastructure investments could be next on President Trump’s radar. Nucor (NUE) expects that President Trump’s proposed trillion-dollar infrastructure investment plan could generate an annual incremental demand of 5 million tons of steel. The annual incremental demand is a significant number at ~5% of the current US steel demand. Since US steel imports are expected to fall after the Section 232 tariffs, the import substitution would tighten US steel markets and support domestic steel prices. ArcelorMittal (MT) gets almost one-quarter of its revenues from the North American Free Trade Agreement. ArcelorMittal would likely benefit from higher US steel prices.
U.S. Steel Corporation’s tubular operations could benefit if we see lower imports in the OCTG (oil country tubular goods) category. Tenaris (TS) also produces OCTG products.
Next, we’ll discuss the long-term risks for the US steel industry.