Q4 Earnings Decline Forecast
Stock Price Drops 4% After Hours
Chinese Tariff Barriers Also Ineffective
US Steel, once a symbol of 'American industrialization,' has been pushed aside as a takeover target by Nippon Steel and issued a disappointing fourth-quarter earnings outlook amid a tsunami of Chinese steel imports. Despite the Biden administration erecting tariff barriers this year to counter Chinese steel, the downturn continues.
On the 19th (local time), US Steel announced after the New York market closed that it expects a decline in earnings for the fourth quarter (September to December) due to falling U.S. steel prices and weakening demand in Europe. The fourth-quarter EBITDA forecast was $150 million, far below the consensus estimate of $260 million. As a result, US Steel's stock price fell about 4% in after-hours trading on the New York Stock Exchange.
US Steel appears to be struggling due to the influx of low-priced Chinese steel. China has been dumping steel exports amid a real estate market slump and construction industry downturn, causing U.S. steel prices to plunge 40% just this year.
President Biden tripled tariffs on Chinese steel in April and, in July, imposed a 25% tariff on Chinese steel routed through Mexico, which was identified as a tariff circumvention channel. However, due to the continued decline in Chinese steel prices and the weakening yuan, these tariff barriers are considered insufficient to prevent the U.S. steel industry's downturn. Additionally, steel demand has decreased in Europe, US Steel's largest export market, due to a slump in the automotive industry.
These difficulties have been directly reflected in the stock price. US Steel's shares have fallen about 34% this year, lagging behind the three major New York stock exchanges, which have continued to reach record highs.
Notably, US Steel became a 'hot potato' in U.S. political circles after Nippon Steel announced in December last year its intention to acquire the company for $14.9 billion (about 21 trillion won). With Pennsylvania, home to US Steel headquarters and the United Steelworkers union, emerging as a key battleground state in the November U.S. presidential election, both the Democratic and Republican parties have expressed opposition to the sale of US Steel.
The U.S. Committee on Foreign Investment in the United States (CFIUS) must submit a recommendation on Nippon Steel's acquisition of US Steel to President Biden within about ten days before the end of this year. Even if CFIUS determines that Nippon Steel's acquisition poses no national security threat, it is highly likely that President Biden will veto the deal. President-elect Donald Trump, set to take office in January next year, holds an even stronger opposition stance than Biden. Earlier this month, Trump said, "I am completely opposed to US Steel, once great and powerful, being acquired by a foreign company, in this case Nippon Steel," adding, "We will make US Steel strong and great again through a series of tax benefits and tariff measures."
On the other hand, former Secretary of State Mike Pompeo, who served in the first Trump administration, recently wrote in an op-ed for the Wall Street Journal (WSJ) that "Opposing Nippon Steel's acquisition of US Steel is very short-sighted and will strengthen China's dominance in steel." He argued, "This deal will enhance US Steel's current operations and production capacity, benefit workers and communities, and strengthen the competitiveness of the U.S. steel industry." He also stated, "Nippon Steel's proposal to invest $2.7 billion in local steel facilities will enable US Steel to better compete against China's trade strategies."
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