Will U.S. Steel and ArcelorMittal Benefit From Demand Out of China and the U.S.?

ShinesRooms.com Provides Stock Research on ArcelorMittal and United States Steel Corp.

Marketwired

NEW YORK, NY--(Marketwire - Jan 14, 2013) - The steel and iron industry looks well positioned to turn in a positive year in 2013 as demand from the world's top two economies could propel steel and iron prices and volumes higher. An improving economy in the U.S. coupled with the fiscal cliff resolution, for now at least, bodes well for companies such as United States Steel Corp. (NYSE: X) and ArcelorMittal (NYSE: MT). China's massive infrastructure improvement plans are also a plus, and should lead to higher sales for companies with operations in the area. Companies have also been looking to mergers and acquisitions of late, as a way to bolster their market share as well as solidify business relationships within the industry. While there are certainly a number of positives, Europe remains a headwind for the industry, and energy prices are also a concern. That being said, industry players look well equipped to deal with the challenges and turn in a strong 2013.

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China is perhaps creating the largest opportunity for steel and iron companies to capitalize on at the moment, as the government there has put into motion an extensive plan to grow the country's infrastructure. The projects, which include highways and ports, are valued at over $150 billion, and are poised to increase steel demand, which in turn may drive up the price of steel as well.

Back home there is also encouraging news. Demand for steel in 2012 increased by 8% last year, and as the economy continues to recover, 2013 could post an even bigger gain. According to The Associated General Contractors of America, construction employers increased jobs in December by 30,000, marking the highest monthly increase in almost two years. Companies with operations in the U.S., such as United States Steel Corp., also currently have a leg up on the competition due to lower energy costs. Cheap natural gas has allowed several companies in the industry to widen margins, and those able to produce their product for less could continue to outperform their peers moving forward. Energy is a major production cost for the industry, and unfortunately improving economies usually coincide with higher energy prices. So while sales may improve due to a recovering global economy, production costs could take a bite out of gains.

On the mergers, acquisitions and partnership side of things, both ArcelorMittal and United States Steel Corp. have been making headlines. ArcelorMittal recently put itself into a position to pad its bank account in addition to strengthening key relationships, as it announced one of its wholly owned subsidiaries and a consortium led by POSCO and China Steel Corp. will enter into a joint venture partnership. Under the terms, the consortium will pay Arcelor $1.1 billion for a 15% stake in the venture, which will own Arcelor's Labrador Trough iron ore mining and infrastructure assets. United States Steel has also been busy on the partnership front. The company announced last month that through one of its subsidiaries it has signed a definitive agreement with Butch Gilliam Enterprises LLC to form a joint venture. The company stated that the venture will provide a number of tubular services, and will serve the energy industry in the Permian Basin.

With energy prices set to increase alongside recovering economies, companies in the steel and iron industry will be focusing on keeping costs down. A struggling European economy continues to weigh on sales to the area; however, those well positioned to take advantage of an uptick in China and the U.S. could still have a successful year.

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