During the company’s 1Q18 earnings call, David Burritt, U.S. Steel Corporation’s (X) CEO, talked about “long-term returns” for shareholders. He said, “Those with a short-term perspective will judge us by how we manage in the near-term challenges, but those who have truly invested in our company and share our long-term perspective will judge us by how we develop and optimize our opportunities. We are in this business for the long term and are developing differentiated capabilities to serve customers and benefit not only them but also our employees and investors through the business cycle.”
By definition, equity investments are meant to be long term. In a cyclical industry like steel (XME), investors would like to time the cycle for better returns. Looking at the current markets, US steel prices are at the highest level since 2011. U.S. Steel Corporation investors would have liked the company to run the plants full throttle under these circumstances. U.S. Steel Corporation will actually be taking downtime to revitalize its assets. Does that mean that the company isn’t doing the correct thing by investing in its assets?
Like AK Steel (AKS), U.S. Steel Corporation produces steel in blast furnaces—some of which are quite old. In contrast, Nucor (NUE) and Steel Dynamics (STLD) produce steel in new age mini-mills. By investing in its plants, U.S. Steel Corporation is laying the grounds for sustainable earnings throughout the business cycles. The company could somewhat miss the current upcycle. The current asset revitalization plan is seen by some analysts as an aftereffect of underinvestment in facilities in the past few years.
Next, we’ll discuss the factors could help U.S. Steel Corporation recover from its slump.