US Steel sees record adjusted EBITDA margin in Q2

United States Steel Corp., or U.S. Steel, has reported second-quarter 2021 net earnings of $1,012 million, or $3.53 per diluted share, and adjusted net earnings totaled $964 million, or $3.37per diluted share for the quarter. The Pittsburgh-based steel producer recorded a second-quarter 2020 net loss of $589 million, or $3.36 per diluted share, and an adjusted net loss of $469 million, or $2.67 per diluted share.

“The second quarter was an exceptional quarter for U.S. Steel,” U. S. Steel President and CEO David B. Burritt says in a news release announcing the company’s quarterly financials. “The enterprise delivered record adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) margins, highlighting the power of a combined integrated and minimill footprint. Our financial strength gives us the confidence to announce up to $1 billion of additional debt reduction over the next 12 months. This is in addition to the $2.2 billion of debt reduction we’ve already committed to or delivered to date.”

In late 2020, U.S. Steel completed its acquisition of Big River Steel (BRS), Osceola, Arkansas. BRS operates a LEED-certified electric arc furnace (EAF) flat-rolled steel mill that can produce 3.3 million tons of steel annually. The facility combines an EAF with a Ruhrstahl Heraeus degasser, allowing it to produce what it calls “cleaner, more formable steels.”

"Our mission is to provide customers with profitable steel solutions that benefit people and planet,” Burritt says. “Our Best of Both business model creates the platform to transition to Best for All so that we can contribute to a more sustainable future for all our stakeholders. We recently announced an investment in a state-of-the-art nongrain-oriented (NGO) electrical steel line that will further Big River Steel’s industry-leading position. This investment allows us to partner with auto OEMs (original equipment manufacturers) on their own decarbonization goals. We also divested our Transtar rail assets to support our transition to a Best for All strategy.”

The Transtar sale yielded gross proceeds of approximately $640 million, Burritt shared during the earnings call to review U.S. Steel’s quarterly performance.

Regarding the NGO investment, in that same call, Burritt said it was funded by the free cash flow BRS is generating. “This investment is the very definition of Best for All. For our customers, we are meeting you where you are headed with the next most innovative and technologically advanced generation of NGO electrical steel. Our customers deserve a like-minded partner to support their growing fleet of electric vehicles. For our people, we are investing only after a few short months of full ownership of Big River into an asset that is highly differentiated and has strong strategic fit. For our planet, we plan to pursue additional LEED certification for our new NGO line, which will further expand our sustainable verdeX steel brand. And we will do it profitably, delivering industry-leading technology that we expect to generate approximately $140 million of incremental run-rate EBITDA by 2026.”

He added that permits for the project are in place. “We've been able to pull approximately $35 million of capex from the project into 2021 and now expect to spend approximately $85 million this year on the NGO line. Our expected total 2021 capex budget is now approximately $800 million.”

Burritt added that demand remains strong and lead times remain extended for steel. “The industry, including here at U.S. Steel, has several planned outages in the second half of 2021. And low steel industry inventory levels suggest an extended restocking period still needs to take place, supporting steel consumption into the future. The pace of change at U.S. Steel has allowed us to benefit from the sustained market strength we've seen over the past several quarters.”

He acknowledged that some competitive EAF operators are adding capacity, saying, “ … we are building to better, not bigger and believe our unique competitive advantages provide opportunities to expand where the market is headed. In under a year, we've gone from zero EAFs in our footprint to now three of the newest and most capable EAFs in the country.”

Regarding the company’s raw material sourcing strategy, Kevin Lewis, vice president of investor relations and finance, planning and analysis, said on the call that the company’s ownership of BRS had led to the “optimization of scrap within the U.S. Steel footprint.” He added, “So that's really where we've been primarily focused, is optimizing the flow of home scrap, internally generated prime scrap, to our Big River facility in order to displace some of their more expensive outside purchases. Now that doesn't eliminate their need for outside purchased scrap. It just helps optimize really the cost structure there.”

Lewis said that none of the metallics in the form of iron ore that BRS is consuming are sourced from U.S. Steel presently. He said with three EAF furnaces now in the company’s footprint, U.S. Steel will be looking at ways to invest in its iron ore assets to benefit these furnaces.

“I think we are uniquely positioned to target very purposefully all sorts of different metallic strategies,” Lewis said. “So, if you think about a pig iron strategy, it's leveraging existing blast furnaces in the footprint. It doesn't require as much upfront capital in order to execute. So, it can certainly be something we move more quickly on in the near term. When you think about longer term, you're talking about HBI (hot briquetted iron), DRI (direct-reduced iron), it's not something that we're going to certainly roll out. I think it could be an important part of U.S. Steel moving forward, but I would think about them almost potentially sequentially with pig iron maybe be the more near-term opportunity at the right time.”

In the news release accompanying the company’s financial results, Burritt concludes, “We are bullish that today's strong market environment can continue. Our business is firing on all cylinders; our balance sheet has been enhanced, and our pension and OPEB plans are fully funded. We are capitalizing on today’s supportive market to get to our future faster. Our customers are the driving force behind our Best for All ambitions, and we thank our employees for safely delivering record quality and reliability performance for them. We look forward to setting new records in the third quarter and expect to achieve all-time best adjusted EBITDA for the quarter.”