US Steel Hit by a Flurry of Negative News

  • A lot of negative news has hit the steel industry in general—U.S. Steel (X) in particular. From the credit rating downgrade to lower price forecasts, there’s a lot of gloom for the company.
  • The company and other steel stocks are in the red this year. Stock prices fell last month. So far, September isn’t looking any better.

How’s the US steel industry?

For the metals and mining industry, good news has been tough to come by this year. On Tuesday, Moody’s downgraded U.S. Steel’s credit rating by one notch. Earlier in August, Moody’s placed the company’s credit rating on a review. After the downgrade, Moody’s put the company’s outlook as “stable.” Moody’s cited weak end-user demand, lower steel prices, weakness in the company’s Europe and Tubular operations for its decision. Notably, Moody’s also cited the expected increase in the company’s leverage position. The company is investing heavily to revamp its plants. Looking at current markets, the company might not be able to finance the capex with internal accruals. The company will likely burn cash over the next three years. As a result, the company would have to turn to debt markets to finance its ongoing capex program.

Macro picture

The macro picture isn’t looking any better for US steel companies. Last month seaborne iron ore prices had their worst month in eight years. For integrated producers like U.S. Steel and ArcelorMittal (MT), falling iron ore prices are negative. Although U.S. Steel’s Europe operations would take a sigh of relief after the fall in iron ore, its Flat-Rolled segment would be impacted negatively. We should remember that the company is self-sufficient in its iron ore needs in the US. However, it sources iron ore from third parties in Europe. AK Steel (AKS) hedges its iron ore requirements. Nucor (NUE) mainly relies on scrap for its electric arc furnaces.

Steel prices in the US

For steel companies in the US, the bad news does not end here. Fitch Research has lowered its forecast for global prices. To be sure, global steel prices have been weak this year. Now, falling iron ore prices and weak demand could put more pressure on prices globally. US-China trade tensions aren’t helping the metal and mining industry’s cause either. Aluminum and copper prices are also sagging near a multi-quarter low amid the US-China trade war. US steel prices have been among the worst-performing prices this year. Last year, the prices rose to a decade-high following Section 232 tariffs. However, the prices started to taper down in the second half of the year. Domestic prices have fallen roughly 40% from last year’s high.

Price action

Falling metal prices have also taken a toll on steel companies’ stock prices. X, MT, AKS, and NUE closed with losses last year. All of these stocks are in the red this year as well. Steel companies’ stock prices are approaching their 52-week lows. However, President Trump said last month that the industry is thriving under his presidency.