US steel stocks are a good opportunity for a long term investment. The Federal Reserve’s third quantitative easing program could benefit steel producers as demand recovers specially in the construction and automotive markets. But this could take some time.
US steel production fell 8.3% to 6.7 million metric tons in February from January 2013. Investors should follow China’s events closely as the country has a 50% share of the world’s steel production and exports its excess supply to countries such as the United States which represents only 5% of world production.
Let’s take a look at three companies from the steel sector that could benefit from the current situation:
The largest steel company is suffering from its Europe’s operations. It has posted a net loss of $3.7 billion for 2012 as demand in Europe declined 8.8% in 2012. Its steel shipments fell 2.3% year over year. ArcelorMittal (ADR) (NYSE:MT) has a lot of exposure to Europe’s economic woes as most of its blast furnaces are located there although the company has been closing some of them (for example in France). If the situation does not improve in that continent investors could see another quarter loss.
On the positive side, the company has decreased its net debt $1.4 billion during the fourth quarter and management is expecting that steel demand could grow between 2 and 3% in 2013. It will try to shift some of its production capacity to other regions including the US as it has submitted a $1.5 billion bid for ThyssenKrupp’s Alabama plant. The company seems to be cutting costs in different ways as it has cut its dividend to $0.20/share for 2013 compared to a $0.75/share paid in 2012 and will also reduce its capital expenditure for 2013 to $3.5 billion from a previous year $4.7 billion.
United States Steel Corporation (NYSE:X): Recovery On Track
United States Steel Corporation (NYSE:X) is the largest producer by volume in the United States. Its latest results have also been hurt by global economic uncertainty as it posted a net loss of $124 million for 2012 or x2.3 times the net loss posted in 2011. Other concern is shown by its ~7% decline in sales for 2012 to $4.49 billion. The company is also exposed to the European markets specifically with its plant located in Slovakia. The company is expecting the tubular segment to rebound this year as the fourth quarter it posted a meager $32 million profit.