US Steel Corporation (X) is one of the largest producers of steel in the United States, and within the top 20 producers in the world. The company recently reported record financial performance during Q4 2021 due to the higher demand of steel post-Covid and inflation. Steel prices are once again on the rise due to disruptions from the war in Ukraine.
US Steel’s Q1 2022 guidance indicates a continued profit from these market conditions. The company’s stock price has seen some uptrend over the last twelve months, gaining about 64%. Considering all present circumstances, I place a bullish rating on US Steel. Investors should watch for a possible end to the steel price rally with an end of the war, and towards the end of the year.
The Ukraine War and Steel Export Disruptions
Several commodities, including oil, natural gas, coal, wheat, fertilizer, nickel, and steel, are experiencing volatile price fluctuations due to disruptions from the war. Concerns over the importation of these commodities to the US and Europe from Russia and Ukraine have ben dramatically elevated over the last month.
The war has ended exports from Ukraine and sanctions have disrupted Russian supply chains. There is a large reliance in Europe on Russian and Ukrainian exports of raw materials, and it is understood that a price strain on these commodities affects US markets as well.
Whether the disruption is severe for each commodity does not really matter because the futures of these commodities have been significantly rising. May contracts for US Midwest Domestic Hot-Rolled Coil Steel (CRU) are currently trading between $1400 and $1500 per ton. Pre-pandemic, the same future’s contracts were trading between $400 and $500 per ton.
During COVID-19 lockdowns, construction projects were halted and the cost of steel dropped. With the reopening of the economy, demand became high and prices rose. Meanwhile, inflation caused the prices to skyrocket. Back in August, the price was around $1950 per ton. Leading up to the new year, steel prices had fallen once again. The ongoing war and foreseeable disruptions have caused yet another skyrocketing spike in price over the last 30 days. The price of steel and metallics is expected to drop later in the year, depending on an end of the hostilities in eastern Europe.
US Steel’s Q4 2021 Record Performance
US Steel reported revenues of $5.622 billion, representing a 119% increase year-over-year. The increase is due in part to the higher demand of steel post-COVID-19. The company showed a net income of $1.038 billion. Q4 numbers are significantly higher than the previous year, which represented a halting of construction during the pandemic.
The price of steel was high during Q4 2021. The company reports their realized price per ton, which represents more than a 50% increase year-over-year. US Steel received the following numbers per segment per ton: flat-rolled $1,432, mini mill $1,490, US Steel Europe $1,075, and tubular $1,968. US Steel shipped 3.746 million tons of steel during the quarter.
The company reported a cash position of $2.522 billion and liquidity of $4.971 billion. Long-term assets amounted to $17.816 billion versus long-term liabilities of $8.713 billion. US Steel reported its total debt load at $4.085 billion.
US Steel’s Q1 2022 Guidance
The company expects an adjusted EBITDA of $1.3 billion and adjusted diluted earnings per share between $2.96 and $3.00. The market consensus on revenue for Q1 2022 $5.34 billion and an EPS between $3.00 and $3.20. The company may not meet the consensus, but it states in its guidance that high steel prices will continue to play a role in its high revenue numbers. The company cites the war in Ukraine as the major cause behind rising steel prices. US Steel foresees the war to continue to play a role in its performance for Q1 2022 results.
US Steel’s Stock Price Movements
The company’s stock price has been seen several rallies throughout the last twelve months and has found upper resistance at $30 per share. The current rally broke the stock out of this resistance, as it now trades at $38.20 per share. The stock price hit its 52-week low back in late January and has been on the rise since. The rally is expected to continue, but larger market volatility is still playing a roll on all stock price movements.
Wall Street’s Take
Turning to Wall Street, US Steel has a Moderate Sell rating based on one Buy, three Hold, and three Sell ratings assigned over the last 3 months. US Steel’s current price target of $32.82 represents a downside of 14.64% price decrease, compared to its current price of $38.45.
US Steel is seeing record financial performance due to the reopening of the economy and the increased demand of construction-grade steel. The company will continue to see increased revenues and net income due to the export disruptions from the war in eastern Europe. Steel future contracts saw yearly highs earlier in the year due to inflation, and the prices are high again due to the war.
The company foresees these conditions to remain through the next quarter at least. When the war ends, steel prices are expected to drop, as they were lower before the war began.
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