U.S. Steel Talks Price Hike, Investments; Says Little on Sales Process

On the Recent $ 100-per-ton Price Hike and UAW Strike

The company provided some color on its $100-per-ton price increase that was announced earlier in the week.

Company executives said the increase is supported by strength in its order book and continuing momentum closing out this calendar year.

U.S. Steel president and CEO David Burritt said the company’s order book is full for the current quarter.

Kevin Lewis, VP of finance, noted there has been increasing activity from the line pipe business, and the appliance sector is on track for another outstanding year.

Although the United Auto Workers (UAW) union strike and work stoppage has impacted the automotive business, there is “light at the end of the tunnel,” he said, which will rectify demand in the short term.

Automotive accounts for 30% of the company’s flat-rolled segment. While a tentative deal between the UAW and Ford is a positive sign, U.S. Steel is still closely monitoring ongoing negotiations between the union and Stellantis and General Motors.

The strike’s impact was taken into consideration when the company temporarily idled its Granite City Works in September. It’s too early to estimate when a restart might occur, executives said on the call.

On the service center side, Lewis said inventories were low at the end of Q3. The company is seeing strong demand and higher orders for Q4.

The company’s tubular business is seeing improvement in the oil and gas markets, as evidenced by rig counts ticking up. Additionally, there are declining imports and reduced inventories in the marketplace. Shipments are expected to improve in Q4.

The “pricing momentum is real, and we’re excited about the [price] increase,” Lewis stated.

Overall, the positive momentum continues to build, and the company is in a good position going into 2024, he said.

For its 2024 outlook, U.S. Steel is using an average price for hot-rolled coil of $750 per ton. This is still assumptive, CFO Jess Graziano noted.

Investments Ramping Up and Coming Online

U.S. Steel is excited about the coming year, as many of the investment projects it’s been working on over the past few years will be coming online. Some projects have already started up and will be adding significant contributions to earnings.

The Big River 2 project near Osceola, Ark., is slated to produce its first coil in the second half of next year. It is projected to achieve a run rate of 25-30% next year, producing 750,000 to 900,000 tons, with product holding a premium of roughly $170 per ton over HRC. Estimated EBITDA is $75-125 million for 2024, $625 million in 2025, and $650 million in 2026.

A new 325,000-ton-per-year dual-coating line at BRS is also on track for startup in the second half of 2024. The line will achieve a run rate of about 15-23% next year, processing approximately 50,000 to 75,000 tons of galvanized and Galvalume sheet and adding $10-15 million in EBITDA. Those earnings will push up to $55-60 million in 2025 and 2026.

U.S. Steel celebrated the opening of its $450-million non-grain oriented (NGO) electrical steel line at Big River Steel in October. In 2024, the line will produce about 50% of its total capacity of 100,000 tons. Steel from the line will have a roughly $1,000-per-ton premium over HRC prices. The line is estimated to add $60 million in EBITDA in 2024, $120 million in 2025, and $140 million in 2026.

A new pig iron machine at Gary Works came online ahead of schedule in Q4 last year. It will achieve its annual run rate of production of 500,000 tons in 2024 and will add $30 million in EBITDA next year vs. $20 million for 2023.

Finally, the company’s $150-million direct-reduced-grade iron pellet plant in Keewatin, Minn., will start up by the end of this year. Equipment installation is currently taking place, and off-take agreements are in the works.

Executives said that after years of heavy investment, U.S. Steel is finally coming down the capex mountain and expects to see tangible results from these investments next year.

Strategic Review Process

U.S. Steel would not provide additional details regarding its strategic review process on the earnings call.

Company executives reiterated, however, that there has been serious interest from multiple highly credible bidders and that the board is focused on making the best decision in the interest of U.S. Steel shareholders.

“We are flattered, but not surprised, by the interest,” said Burritt. He ensured the company’s strategic review process has been “robust, fair, and rigorous,” and steady progress is being made as they navigate the due diligence process.