Al Root
United States Steel stock fell Friday morning after providing a downbeat update about its business on Thursday evening.
The guidance is a reminder that the steel business is tough and that it would be much better to be bigger and well-capitalized in a global commodity business.
For the fourth quarter, U.S. Steel expects earnings before interest, taxes, depreciation, and amortization, or Ebitda, to be about $150 million. Wall Street was looking for about $230 million, according to FactSet. In the year-ago fourth quarter, U.S. Steel reported Ebitda of about $330 million.
The drop isn't really down to anything U.S. Steel is doing. Benchmark steel prices are down to roughly $700 a ton from $1,100 a year ago. Nucor, America's largest steel producer, said earlier this week that its fourth-quarter earnings per share would be about 60 cents, down from $3.16 a year ago. Before that update, Wall Street was looking for closer to $1 a share.
U.S. Steel stock was down 6.7% in early trading at $29.61, while S&P 500 and Dow Jones Industrial Average futures were down 0.9% and 0.5%, respectively.
Coming into Friday trading, U.S. Steel stock was off about 35% year to date. Most of that decline came in March after President Biden indicated he would work to block a proposed takeover of U.S. Steel by Nippon Steel.
Politicians from both sides of the aisle, including President-elect Donald Trump, have opposed the deal, citing mainly psychology and that U.S. Steel needs to be U.S.-owned.
The steel mills, of course, aren't going anywhere and Nippon Steel, the fourth-largest steel producer in the world, has committed to spending billions of dollars in America to improve operations -- billions U.S. Steel doesn't have.
U.S. Steel, the largest steel maker on the planet more than a century ago, is a relatively small steel producer now. In 2023, Nippon produced some 44 million metric tons of steel, while Nucor made about 21 million tons. U.S. Steel produced about 16 million that year, also trailing Cleveland-Cliffs, and leaving it the third-largest in the U.S., and only the 24th-largest globally.
Nippon is offering $55 in cash for every U.S. Steel share.
U.S. Steel's stock price is miles away from that bid now, indicating investors don't hold out much hope for the deal.
In the absence of the deal, U.S. Steel investors need to hope for higher steel prices. That will require, in part, a better industrial economy. The U.S. manufacturing sector has been contracting for about two years.
Lower interest rates can help boost activity. President Trump has promised tariffs on imported steel, too. Tariffs have been used in the past. Historically, they have provided a temporary boost, but haven't materially changed the profitability of U.S. steel producers over a significant period.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 20, 2024 09:35 ET (14:35 GMT)
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