U.S. Steel Company
VALUATION HIGHLIGHTS
- U.S. Flat Rolled constitutes 71% of the Trefis price estimate for U.S. Steel's stock.
- European Flat Rolled and Tubular constitutes 19% of the Trefis price estimate for U.S. Steel's stock.
- U.S. Tubular constitutes 10% of the Trefis price estimate for U.S. Steel's stock.
WHAT HAS CHANGED?
- Nippon Steel To Buy U.S. Steel?
- Nippon Steel has offered to buy U.S. Steel for $14.9 billion after it won an auction for the 122-year-old American steelmaker. The all-cash deal values U.S. Steel at $55 per share, representing a 40% premium. The deal is, however, uncertain currently with strong political opposition.
- Latest earnings - Q4 2024
- U.S. Steel posted a better-than-expected set of Q4 2024 results. Revenue for the quarter fell about 15% year-over-year to $3.51 billion. The company reported a net loss of $89 million for Q4 2024, slightly worse than the $80 million loss in the same period last year.
- Near-term economic headwinds
- There are a couple of factors clouding the outlook for the aluminum industry. The U.S. Federal Reserve and other major central banks have hiked interest rates at an aggressive pace to combat inflation. Following the Fed's big rate hikes over the past couple of years, the effective federal funds rate stood at over 4.5% - the highest levels seen in over a decade. However, the Fed cut rates by 50 basis points in September 2024, the first cut in close to four years. The most recent Federal Reserve interest rate cut occurred in December 2024, when the Fed lowered the benchmark rate by 25 basis points to support economic activity and the labor market. Higher interest rates may result in a hard landing for the U.S. economy, leading to lower demand from key aluminum consumers such as the automotive and construction industry.
- Potential impact of the federal government's infrastructure plan
- The U.S. government has planned to overhaul domestic infrastructure, focusing on transportation infrastructure. Once passed by Congress, implementing this infrastructure plan is expected to boost the steel demand sharply.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of U.S. Steel's value that present opportunities for upside or downside to the current Trefis price estimate for U.S. Steel:
U.S. Tubular Products division
- U.S. Tubular Products EBITDA Margin: The EBITDA Margin for the U.S. Tubular Products division stood at -18% in 2020 although it rose to about 43% in 2022, driven by surging prices. Margins fell to 16% in 2024 owing to weak prices. However, we expect margins to stabilize at about 18% in the long term.
- U.S. Flat Rolled Products Average Price: We currently expect the average realized price for the U.S. Flat-rolled division to rise to $1,400 per ton by the end of the forecast period post the imposition of import tariffs on several importing countries. However, if the recovery in realized prices is less than anticipated and the division's average realized price drops to $1,200 per ton by the end of the forecast period, it would represent a downside of around 5% to the Trefis price estimate.
For additional details, select a driver above or select a division from the interactive Trefis split for U.S. Steel at the top of the page.
BUSINESS SUMMARY
U.S. Steel is an integrated steel producer of flat-rolled and tubular products with major production operations in North America and Europe. An integrated producer uses iron ore and coke as primary raw materials for steel production. According to the latest World Steel Association statistics, U.S. Steel is the twenty-sixth largest steel producer globally.
U.S. Steel's operations have an annual raw steel production capability of 22 million tons, of which 17 million tons are located in North America and 5 million tons in Europe.
U.S. Steel is also engaged in other business activities related to steel-making operations, including transportation services (railroad and barge operations) and real estate operations.
SOURCES OF VALUE
Flat Rolled products refer to steel sheets and plates made by rolling processes. The various categories of Flat Rolled products include hot-rolled sheets, cold-rolled sheets, coated sheets, semi-finished bars and plates, and tin mill products.
The U.S. Flat-Rolled division is the most valuable division for the firm for the following reasons:
Largest revenue generating division
The U.S. Flat-Rolled division generated 60% of U.S. Steel's total revenues in 2023 and is expected to contribute 65% in 2025.
Highest production capacity and sales volumes
The Flat-Rolled segment has an annual production capacity of 13.2 million tons. The division's steel shipments stood at 7.8 million tons in 2023 and 8 million tons in 2024, which would likely be 8.5 million tons by the end of our forecast period.
