Do U.S. Steel Shares problems signal a longer-term struggle for the industry?
Domestic steel producer U.S. Steel is down over 11% today to about $11 per share after highs over $13 earlier this week.
Experts are calling it the biggest single-day market drop since April 2018. Looking at historical charts, the stock has fallen 40% throughout this year. Now, the company expects to report bigger losses than previously estimated. And execs are warning the market about pending outlooks.
Steel Industry Echoes Warning Signs
Other U.S. steel companies giving similar guidance include Nucor and Steel Dynamics. In its announcement, Nucor noted declining prices for sheet and plate metal.
The trend — this clustering of internal reports to the markets — points to a wider problem in the industry as a whole. That’s something that analysts will keep a close eye on. Observers see weaknesses in the U.S. and in Europe in terms of steel demand.
Economists looking at American tariffs on steel imports note that a 25% tariff initially juiced American steel prices last year. But after a spike in the first two quarters, domestic steel prices are steadily moving downward since.
Here’s the argument in a nutshell: Although the protective nature of the tariffs gave U.S. domestic producers an edge, the ensuing heartburn over global growth has set in. That’s led to downward pressure on these firms, many of which have a multinational reach.
Production and Demand Mismatch Could Drive Slowdown
Overproduction is another potential problem. New mill activity clashes with uncertainty around the growth of the global economy, and U.S. producers look to whether China will cut its demand due to trade conflict or other factors.
For example, a one-billion-dollar upgrade of U.S. Steel’s Mon Valley Works seems like a bold move in the face of economic uncertainty. The total employment at the collective facilities is around 3,000 people. And leadership hails the move as a “breakthrough” built on new technologies.
In terms of U.S. Steel’s equity, historical charts show a 52-week high of $30.91, which is nearly triple the anemic share price investors see now. The 52-week low is $10.16. Today’s values are rapidly nearing that 52-week low mark. The company’s stock has moved steadily downward after successive spikes in November 2018 and in February of this year, as well as two more in May and July.
Effects of Plant Closings
U.S. Steel also announces it’s decreasing its European workforce and suggests third-quarter 2019 adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) to be about $115 million.
Coverage from the Pittsburgh Post-Gazette in June tells the story of blast furnaces slated for closure both in the U.S. and in Europe, in conjunction with lower second-quarter estimates.
For a company that reported profits of $1.1 billion in 2018, the closures are a troubling indicator to some investors that this industry is experiencing a downturn. Specific loss estimates from the above furnace closures are expected to be around 200,000 tons to 225,000 tons a month and 2.4 million tons to 2.7 million tons annually.
Keep an eye out for more on how domestic steel will react to market pressures through the end of 2019.
Justin Stoltzfus writes for Lancaster Newspapers in Lancaster, PA, as well as numerous digital publications like Answerstock, Techopedia, Warrior Trading, and Breaking Modern. His finance reporting has been featured on Motley Fool, Mint.com, and other sites. Stoltzfus is a graduate of James Madison University in Harrisonburg, VA.