U.S. Steel Corp (X) - Get United States Steel Corporation Report shares edged lower Friday after the group forecast record third quarter profits and unveiled plans for a new mill that will start producing in 2024.
U.S. Steel said it expects adjusted current quarter profits of around $2 billion, a 50%-plus increase from the prior period, while launching site-selection process for a $3 billion greenfield electric-arc-furnace (EAF)-based mill that would likely increase its flat-rolled steel production by around 20%. Analysts suggest current sites at Mon Valley in Pennsylvania and Granite City, Illinois could be vulnerable to closure once the new facility is complete.
U.S. Steel also said it's reduced its overall debt by around $2.7 billion so far this year, excluding that linked to its 2019 acquisition of Big River Steel.
“We expect the third quarter to be a quarter of records for U. S. Steel. Supported by strong reliability and quality performance, sustained customer demand, and continued increases in steel selling prices, we expect our 'Best for All' business model to generate record quarterly adjusted EBITDA and EBITDA margins, demonstrating the power of our strategy," said CEO David Burritt.
“We remain bullish that market fundamentals will support a stronger for longer steel market and we’ve accelerated the pace of deleveraging to clear the path to transitioning to our 'Best for All' future faster." he added. "Our best days are ahead.”
U.S. Steel shares were marked 7.1% lower in early Friday trading to change hands at $23.56 each, a move that would trim the stock's year-to-date gain to around 41%.
"Early days on this announcement, but in our view it does raise the risk of another wave of longer-term US capacity additions, putting a dent in the 'higher-for-longer' thesis (for broader steel prices) in our view," said BMO Capital Markets analyst David Gagliano, who carries a market perform rating with a $33 price target on the stock.