U.S. Steel (NYSE:X) has had it rough the last two years with the effect of the global economic downturn seen on the steel industry over this period. In our recent article U.S. Steel Records Loss in 2010, but Good Times Lie Ahead we detailed the company’s results for 2010 while pointing out the factors that will work in U.S. Steel’s favor in the years to come. The recovery in the highly competitive steel industry would also benefit the company’s competitors which includes international steel giants like ArcelorMittal (NYSE:MT), BaoSteel, Posco (NYSE:PKX), Nippon Steel and ThyssenKrupp.
U.S. Steel is an integrated steel producer of flat-rolled and tubular products with major production operations in North America and Europe. It is currently the tenth largest steel producer in the world with an annual raw steel production capability of 31.7 million tons. Our price estimate for U.S.Steel stands at $60.17, roughly 10% ahead of its current market price.
Steel as an Indicator of Growth
The direct use of steel in infrastructure development has made global steel production and consumption figures a metric of economic progress. Over the last decade, China has almost solely pushed global steel production higher by 10% annually on average. The worldwide total production of steel in 2010 was more than 1.4 billion metric tons, of which more than 600 million metric tons were produced by China. [1]
Although global steel figures have been lower in 2009 and 2010 following the economic recession, the steel industry should continue to grow at around 10% in the next few years as other developing Asian countries like India and Thailand show healthy economic development.
Chart created using Trefis' app
Indicators Look Firm for Steel Prices
The World Steel Association formed by about 180 global steel producers including 19 of the world’s 20 largest steel companies recently released steel production figures for the month of February 2011. The global steel output was about 117 million metric tons in February – 8.8% growth year over year (yoy). [2] The numbers also reveal that the yoy growth in each month since November 2010, has been over 5%, with growth touching 12% in January.
The primary metals leading index is a reference indicator for steel compiled by the U.S. Geological Survey for U.S. steel demand. This indicator has risen by at least 5% yoy each month since December 2010, and recorded a 6% growth in steel activity in the U.S. in February 2011. [3]
These signs point to an increasingly positive outlook for steel demand and production, which bodes well for U.S. Steel.
- World crude steel output increases by 15% in 2010, World Steel Association, Jan 21 2011
- World Crude Steel Production Rose 9% in Feb, Bloomberg, March 21 2011
- U.S. February Primary Metals Leading Index: Summary, Bloomberg, March 18 2010
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