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Has U.S. Steel Corporation Bitten Off More than It Can Chew?

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May. 2 2019, Published 2:30 p.m. ET

U.S. Steel Corporation’s capex plans

U.S. Steel Corporation (X) announced a $1.2 billion capex plan today. CEO David Burritt said, “This is a truly transformational investment for U. S. Steel. We are combining our integrated steelmaking process with industry-leading endless casting and rolling to reinvest in steelmaking and secure the future for a new generation of steelworkers in Western Pennsylvania and the Mon Valley.”

The company is already investing ~$2 billion under its asset revitalization plan, and has resumed construction at its abandoned electric arc furnace project at Fairfield Works. It plans to modernize facilities and move up the value chain with these investments.

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Outlay

U.S. Steel Corporation expects to invest ~$60 million in 2019, $400 million in 2020, and $650 million in 2021. Whereas its plant modernization investments should help drive structural cost savings, the next three years could be cash negative because of its capex.

Additionally, the economic expansion we’ve been seeing, the longest in history, might not last forever. Steel stocks have been pressured this year as steel prices come off their highs. Economic uncertainty and slowing demand growth are also worrying steel investors.

U.S. Steel Corporation’s earnings are expected to be released after markets close today. For more on the company, read U.S. Steel: Q1 Earnings Might Revive Investors’ Sentiments.

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