The U.S - PROOF Steel Industry (A New ERA)

WHAT Recession ?!? WHAT Slowdown ?! The numbers speak for THEMSELVES. Despite a fragile and declining U.S. economy (...shout out to the Alan Greenspan-induced housing bubble...), STEEL companies are earning record Profits selling into the demands of Emerging economies seeking basic INFRASTRUCTURE (exp's of emerging economies = the 'BRIC' countries - Brazil, Russia, India and China). As market commentator Jim Cramer rightfully pointed out a year or so ago, we have entered a brand new ERA for these once massively U.S. demand-dependent steel companies. An ERA that allows steel manufacturers to maintain break-neck profitability and handily 'beat' wall street earning expectations during a U.S. recession.

Time to talk numbers + unveil the Empirical evidence..According to the U.S. Commerce Department, shipments of Steel to the United States declined 11% year over year during the first 5 months of 2008 to about 12 million metric tons. DESPITE the slowdown in the U.S., the worldwide Steel industry continues to GROW.

Witness the below presented EVIDENCE courtesy of the 2Q08 earnings results just recently reported by Globally-diversified steel manufacturers, U.S. Steel (X) and ArcelorMittal (MT). FYI, U.S. Steel is the Largest U.S. steel company by marketcap while ArcelorMittal is the WORLD's largest steel manufacturer by just about any measure you and I can think of (production, marketcap, profits, etc.) :


Highlights from U.S. Steel's 2Q08 (X) :
* U.S. Steel recorded a 123% year over year growth in PROFIT and beat wall street earnings estimates by 50% ! (Stripping out non-recurring items, 'normalized' earnings per share profit was $5.67 or $668 million, topping the $3.82 average estimate of 14 analysts in a Bloomberg survey...this compares to X's 2Q07 earnings of $2.54/share or $302 million)

* Total Company Sales rose 60% to a quarterly record of $6.74 billion vs. 2Q07's $4.23 Billion

* U.S. Steel, which can produce about 27 million tons of the metal a year, has three main units: North American flat-rolled steel; Europe, where it supplies central and Western Europe from mills in Serbia and Slovakia; and tubular products, which sells metal to the oil industry for pipelines...Profit in the flat-rolled unit climbed more than fivefold to $478 million, the company said. Earnings at U.S. Steel Europe increased 22 percent to $298 million, while profit from the tubular business rose 82 percent to $177 million.

* U.S. Steel said it expects results from sales of flat-rolled steel to "improve substantially'' in 3Q08 and for profit from the tubular unit (levered to the oil + gas industry) to rise as prices increase. 3Q08 earnings from the European unit will decrease because of higher raw material costs and planned maintenance, the company said.

* U.S. Steel CEO John Surma on Outlook: "We expect another excellent quarter with continued earnings improvement as price increases implemented during the second quarter and early in the third quarter are expected to improve average realized prices for each of our reportable segments."


Highlights from ArcelorMittal's 2Q08 (MT) :
* Profits increased by 114% year over year to $5.84 Billion and beat analysts expectations by 50% ! (analysts surveyed by Reuters predicted a 2Q08 profit of $3.97 Billion...MT's 2Q07 profits were $2.72 Billion or $1.97/share)

* Total Company Sales were up 39% vs. 2Q07 to $37.8 BILLION (analysts expected $34.7 Billion)

* Total steel shipments for 2Q08 were 29.8 million metric tons as compared with steel shipments of 28.7 million metric tons in 2Q07 (2% increase in shipments)

* ArcelorMittal CFO Aditya Mittal on Outlook: "We are operating at high levels of capacity, we are close to capacity and can't produce much more steel...The strongest growth is coming from newly industrializing economies, such as Brazil, Russia, China and Eastern Europe...In contracts which have been renegotiated and closed, we have achieved significant (price) increases and we expect that trend to continue until the end of the year and in 2009."

Sources:

bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=X
uk.reuters.com/article/companyNews/idUKL055720920080730?
bloomberg.com/apps/news?pid=20601085&sid=aum3d.CtKKGY&refer=europe


Data Courtesy: Reuters and Bloomberg
Full Disclosure: I own shares of MT.