Why United States Steel is Still a Sell

Steel prices have continued their downtrend and as a result shares of United States Steel Corp (X) have fallen considerably in the last few months. The stock's downtrend looks set to continue as there are no signs of a reversal as of now and I would advise investors to stay away from United States Steel for the time being.

Steel Oversupply from China in spite of weak demand 

The steel market has been plagued by oversupply and that has greatly damaged United States Steel's chances of a turnaround.
Due to the weak market, U.S. Steel's earnings and revenue have fallen significantly. For the recent quarter, the company detailed earnings per share of $1.18, $1.00 less than the consensus estimate of $0.18. Revenue for the quarter came in at $2.83 billion compared to analyst estimate of $2.97 billion.

The company’s shares transacted down around 14% in the subsequent session. United States Steel Corporation’s shares are down approximately 50%, mainly due to the oversupply from China and absence of international demand. With this problem, the company has turned into one of the scruffiest stocks in the market.

Steel prices appears to be going down in the near-term, which is a bad news for United States Steel. The company carry on to face constant decline in the domestic demand for steel. Domestic demand for steel is down around 6% at the end of Q3.

Recently, U.S steel has observed severe drop in demand from the time when oil prices began to decrease, as capital investment has been cut by likely $200 billion for 2015. Despite weak demand, the supply coming from China is mounting hastily into the international market. Increasing supply of steel from China together with weak demand in energy are responsible for the decelerating steel demand.

The company will continue to feel more pain ahead, as imports have certainly escalated in spite of rising dollar and denigrating yuan. Apart from the decelerating demand, Chinese and Brazilian desire for the metal are slackening, as infrastructure development is reiterating with lower GDP and PMI reports.

One of the major issue for United States Steel is its usage of older blast furnace technology, which is costly. The company lost money in five out of its last six years, and this year will likely be the same. The company’s rivals using electric blast furnace, which are low-priced to run, are also being smash, but they aren’t losing cash like the U.S Steel. Hence, the company's competitive position is bad as well, making the stock a sell going forward.
Published on Dec 17, 2015
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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