United States Steel Corporation (X), POSCO (ADR) (PKX), ArcelorMittal (ADR) (MT): What to Do About Steel Investing

Reducing dependence along with innovation

ArcelorMittal (ADR) (NYSE:MT) is increasingly focusing on mining to reduce its dependence on its ore suppliers. It plans to increase its production in its Canada mines by 8 million tons per year (Mtpy), bringing it up to 24 Mtpy by the end of 2013. The expansion plan includes the development of a wholly-owned 420 km railway infrastructure. It estimates this to cost around $1.4 billion and allow greater access to the North American markets. This expansion is expected to boost the company’s revenue from mining to $5.71 billion this year and $6 billion next year, up from $5.39 billion last year.

The company is targeting the auto markets with its new ultra-lightweight car door. By combining advanced high and ultra high strength steel ArcelorMittal (ADR) (NYSE:MT) has been able to reduce the weight of baseline C-segment doors by 5 kg.

Current regulation in the U.S. and Europe demand more fuel-efficient and safe cars. According to company estimates, reducing the weight by 12 kg reduces carbon dioxide emission by one kilogram per kilometer. This product has potential access to around 67.19 million cars in 2013. The company expects revenue of its customized steel products to rise from $16.7 billion last year to $17.5 billion this year.

Conclusion

While some global steel companies are strengthening themselves by reducing external dependence on suppliers, others are waiting for the industry demand to improve.

United States Steel Corporation (NYSE:X) continued to suffer from the oversupply of tubular products and cannot take advantage of increased oil extraction activities in the U.S. POSCO (ADR) (NYSE:PKX), meanwhile, has a demand for its high-end alloy steel from automobile industry in China and is increasing its production but its exposure to the forex market has decreased its net profit due to the volatility of the Korean won. I recommend a hold for these two companies.

ArcelorMittal (ADR) (NYSE:MT)’s strategy of reducing its dependence on external suppliers for raw materials is on course. Its innovative car door is also a strong driver for revenue growth. I recommend a buy on the stock.

The article What to Do About Steel Investing originally appeared on Fool.com and is written by Shweta Dubey.

Shweta Dubey has no position in any stocks mentioned. The Motley Fool owns shares of ArcelorMittal. Shweta is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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