U.S. Steel Beaming Current Income Boom; Needs Tempering Blue Oceans To Maintain In Hard Environment

Currently Highly Profitable
U.S. Steel just reported its most profitable quarter ever, tripling its net income from last year’s third quarter! USS reported a net income of $919 million compared to $269 million in the third quarter of 2007. According to the Wall Street Journal’s October 29th issue, this jump was due to strong demand and pricing. Revenue soared 68% to $7.31 billion up from $4.36 billion a year-ago quarter. In particular, oil and gas industry customers fueled this growth with their strong demand for flat-rolled products and tubular goods. This growth seems to be led more by macro-factors, than as a result of a specially constructed strategy. Steel continues to be a commodity. Given this factor, the profitability and fate of its manufacturers are tied directly to the ebb and flow of macro-economic factors and the global market environment.

Slowed Growth Expected
Given the current environment, steel manufacturers are estimating a slow 4th quarter due to:
1. a volatile economy
2. a softening auto market
3. a drop in demand and sales prices
4. nervous buyers limiting their metal purchases
The biggest factor for this drag is the dramatic slowing of demand in the number of cars made in North America. Car sales for all major U.S. manufacturers were down 30% to 45% in the month of October – GM was the worst with a 45% drop in sales from October of 2007. No one is expecting car sales to dramatically increase anytime soon. To maintain profitability, U.S. Steel is going to have to shift its bets.

Go Into Blue Ocean Waves of Niche Spaces
U.S. Steel should begin to shift way from a holistic-type market presence into occupying space in a variety of niches. They should seek dominant shares in niches dictated by customer usage type and the type of steel product. USS should place bets in diversified targeted industries and product groups. Supplying these markets should be done by shifting production units to smaller dominations such as mini-mills. This more “micro-ized” production unit is greatly aided by the fact that only 65% of the total production capacity is needed to break even. Industry and product group niches that should be targeted include:
1. Electronics
2. Domestic Infrastructure
3. Alternative Energy Industry
4. Foreign Infrastructure
5. Foreign Buildings
U.S. Steel needs to take its dedicated capacity centered around the auto industry, and shift it into a combination of these areas.