Its free cash flow has, after a slight decline, also picked up with rising at a constant rate. On the other hand, Nucor has highly negative free cash flow and a very high payout ratio of 112%, which does not allows the company to retain anything at all to invest in long term growth projects. Lastly, ArcelorMittal, provides the lowest dividend among all but a constant one, unlike Posco’s volatile dividend returns, which still are above the ones provided by its rivals, even during the lows. ArcelorMittal’s is experiencing a downward slope in its free cash flow trend line, since the company struggles with debt.
Final Thoughts
Here in this industry the location from where the companies operate can be a deciding factor, since certain countries provide subsidies to the steel makers, helping them keep costs low. ArcelorMittal and Posco operating from Luxembourg and Korea respectively have an advantage over its U.S. based competitor Nucor in term of pricing; both the companies can competitively price their products considering both of these have plants at least in one of the subsidized locations. Posco stems from the country which is famous for providing huge subsidies to steel makers, which is Korea, whereas ArcelorMittal also has certain plants in subsidized locations, for instance China but Nucor is totally operating in a non subsidized North American region. Moreover, both of them are pushing very hard to obtain licenses and mining leases in India, which is the next big market in terms of demand, as it is a major growth market. So that completely rules Nucor out of the equation, at least for now.
Posco outperforms ArcelorMittal in a number of ways, one ArcelorMittal is struggling with debt and is looking to sell off a few assets and secondly Posco is a little closer to getting licenses and leases in India, since they have already acquired the land. Apart from that most recently its collaborations with the Brazilian mining giant and Korea’s leading shipbuilding company lays the foundation of its success and growth and being able to provide its investors with great returns. The only risk attached with Posco is its reliance on the Korean market, which the company now has mitigated by rapidly expanding overseas. So, if you are looking for decent returns in future, Posco stands out among its rivals.
Zain Raza has no position in any stocks mentioned. The Motley Fool recommends Nucor. The Motley Fool owns shares of ArcelorMittal. Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Global Steel Producers Might Provide You With Solid Returns originally appeared on Fool.com is written by Zain Raza.
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