[Ferro-alloys.com]Trends in the steel industry have not been very promising. Steel producers have struggled with falling prices in recent quarters, reflecting heightened competition from imports and increased production. Oversupply in the industry is a result of Chinese steel production outpacing demand.

 

United States Steel (NYSE: X) recently missed analysts’ estimates by posting a first-quarter net loss of $73 million, narrower than the net loss of $219 million posted a year ago. The flat-rolled steel segment posted a net loss of $13 million, down from a profit of $183 million a year ago on increased competition and higher costs. Also, bottom-line was hurt by an after-tax charge of $22 million related to repurchases of Senior Convertible Notes.

 

U.S. Steel has improved its cash position. At the end of the quarter it had $733 million in cash and $2.5 billion total liquidity in comparison to $570 million in cash and $2.4 billion of total liquidity at the end of 2012. As the company is losing money, liquidity is a key factor.

 

One of the biggest problems that U.S. Steel faces is in obtaining sufficient raw materials and energy in a timely manner. However, it has managed to achieve self-sufficiency in terms of its requirement for coke.  

 

AK Steel (NYSE: AKS) is a very popular stock despite its small market cap ($475 million). The company reported a net loss of $9.9 million for the first-quarter, compared to a net loss of $11.8 million a year ago. The loss was smaller than expected.

 

AK Steel's cost structure is higher than its peers due to its greater reliance on external supply of raw materials. AK Steel pays nearly double for iron ore pellets compared to its integrated competitors. Although the company is investing heavily to procure around 50% of its input requirements internally, benefits from such a move are not expected in the near future.

 

A negative factor to consider for both U.S. Steel and AK Steel is their large legacy liabilities, those being retiree health care benefits as well as pension, both cash expenses each year and expenses going through the income statement.

 

Nucor (NYSE: NUE) recently reported its results for the first-quarter, with a 10% decline in revenue, driven by lower selling prices and shipments, contributing to a 42% fall in earnings. 

 

Nucor has focused on profitable growth through acquisitions over the past several years and the company plans to continue seeking attractive opportunities. Nucor's strong cash flows and balance sheet provide the flexibility to continue with its growth. As of March 30, the company had cash and cash equivalents and short-term investments of $1.08 billion. In addition, the company has an untapped $1.5 billion revolving credit facility which will expire in December 2016.

 

Nucor had to cut its quarterly dividend payments in 2008. However, given the correction in its stock price, the dividend yield is currently 3.50%.

 

Steel Dynamics' (NASDAQ: STLD) first-quarter earnings rose 5.6% y-o-y as the steel maker posted fewer one-off charges, compensating a revenue fall of 9.4% as prices remained weak.

 

First-quarter shipments were higher across the company's operating segments when compared to the fourth quarter of 2012 and to prior year's first quarter, apart from a decrease in metals recycling. Operating income increased slightly when compared to the fourth quarter of last year, but declined 20% y-o-y, primarily due to reduced steel metal spreads, as steel product pricing decreased more than scrap raw material costs.

 

Steel Dynamics' dividend yield is currently 3%.

 

 

Steel producers’ shares have had a difficult year. U.S. Steel is down more than 30% in the last one year, less than AK Steel’s slump of 50%, while Nucor and Steel Dynamics' performances stand out with a 20% and 30% gains, respectively.

 

The market is pricing in expectations that Nucor and Steel Dynamics will recover in the coming quarters while U.S. Steel will struggle. This may be true given that the first two companies have performed better. Nucor and Steel Dynamics' attractive dividend yields also help. However, a 30% drop in U.S. Steel is exaggerated and stock seems oversold.

 

Finally, even if AK Steel has recently gained some upward momentum, the company is unprofitable and faces greater problems than its peers to recover.