United States Steel CorporationX

Morningstar Rating

Stock Research and Analysis

by Min Ye

Although a more consolidated industry profile and renegotiated union contracts help improve U.S. Steel's profitability, high operating leverage still makes the steelmaker vulnerable to a downturn. As steel prices plummeted and domestic producers held Read more

Bulls Say

U.S. Steel has taken full advantage of the robust steel market. The company has reshaped its balance sheet with earnings accumulated in the good years.

The last industry downturn reduced domestic capacity through bankruptcies and consolidation, leaving the survivors to benefit from a more consolidated industry environment and more rational competitors.

High raw-material input costs and a weak U.S. dollar have reduced the cost advantages of foreign producers relative to the domestic integrated producers, thus reducing import competition.

U.S. Steel is self-sufficient in iron ore reserve, thus creating an effective inflation hedge should iron ore prices stay high. Read more

Bears Say

U.S. Steel is leveraged to highly volatile steel prices. Although consolidation has helped steady the steel market, the range of prices in a given year can still vary greatly.

The integrated producers' market share could continue to erode in front of lower-cost minimills, especially in the lower-end product lines.

Domestic integrated steel mills have lagged minimills in technological innovation and production process improvement, resulting in higher operation costs for the former. It will take a change of culture for U.S. Steel to innovate more effectively.

U.S. Steel's relatively high operating leverage creates more volatility in its bottom line as steel prices fluctuate.

Chinese OCTG production is an increasing threat to U.S. Steel because of the former's cost advantage. Technological advancements enable Chinese firms to produce like-quality OCTG, potentially pressuring world prices going forward. Read more

Strategy

U.S. Steel's strategy is to increase its value-added steel product mix and expand its sales globally. The company focuses on producing value-added steel products including advanced high-strength steel, Read more

Management

John P. Surma joined U.S. Steel in the late 1990s after a career at Price Waterhouse. Surma rose through the ranks, occupying various positions of increasing responsibility before he was tapped to lead the company as CEO in 2004. The current management Read more

Profile

U.S. Steel is the world's fifth-largest steel producer and the second-largest integrated steel producer in the U.S. In 2008, the company shipped 22 million tons of steel, Read more

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