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After years of despair that left shareholders reeling, United States Steel Corp. is regaining at least some of its former might.
Once a pillar of the American economy, the company’s long-slumping stock has been one of the hottest large caps over the past three months. That could be just the beginning of a return to form for a stock riding an organizational and industry transformation.
“The potential for transformational change at U.S. Steel is one of the most intriguing stories in the U.S. steel sector at the moment,” Credit Suisse analyst Nathan Littlewood said in a recent note. “The company’s raw material cost advantages as well as privileged steel price environment should position U.S. Steel as one of the most profitable steel makers in the world.”
A century ago, U.S. Steel was known on Wall Street simply as “The Corporation” by virtue of its size alone. More recently, the company benefited from the demand for resources fuelled by China’s rise. The vast quantities of steel required for the building of cities and infrastructure kept prices high through the early 2000s.
The financial crisis snuffed out the global growth needed for a buoyant steel market. And with China consuming half of the world’s steel, a slowdown in Chinese growth over the past couple of years has extended price weakness. Meanwhile, the excessive global capacity that rose to sustain rapid global growth continues to weigh on the commodity.
Sinking steel prices exposed U.S. Steel’s inefficiencies and high costs. In every one of the company’s five fiscal years since the financial crisis, it has posted losses.
Between June, 2008, and April, 2013, shares of U.S. Steel fell from about $192 (U.S.) to $16. That descent wiped out about $20-billion in market value.
The company, and the industry in general, had little to offer investors over the past couple of years. But an improvement in the U.S. economy of late has eased the pressure on the steel market.
“Large investments in shale gas have ushered a renaissance in U.S. manufacturing,” Frederic Bastien, an analyst at Raymond James said in a note. Steelmakers have benefited from the shale boom by providing the tubular products needed for drilling.
Meanwhile, “the long-awaited recovery in non-residential construction has started soaking up big tons of plate from steel mills,” Mr. Bastien said.
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