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Fitch Affirms U.S. Steel's IDR at 'BB-'; Outlook Stable

Release Date:2013-05-04  Hits:9390
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The ratings reflect U.S. Steel's leading market positions in flat-rolled and tubular steel in the U.S., together with it
The ratings reflect U.S. Steel's leading market positions in flat-rolled and tubular steel in the U.S., together with its high degree of control over its raw materials offset by the high fixed costs of integrated steel producers.
U.S. Steel is the second largest North American flat-rolled steel producer with capacity of 24.3 million tons; 2012 shipments were 16 million tons. U.S. Steel is the largest integrated North American tubular producer with capacity of 2.8 million tons; 2012 shipments were 1.9 million tons.
U.S. Steel's production of iron ore pellets from its own operations was 21.4 million tons and from its share of joint ventures was 2.9 million tons in 2012 accounting for a significant share of its needs.
The U.S. steel industry is challenged by low capacity utilization (about 76% on average for 2012 and year to date 2013) as a result of slow recovery in manufacturing and construction. Fitch believes that margins are vulnerable when capacity utilization is below 80%. Fitch expects capacity utilization to remain below 80% in 2013.
Continued softness in the construction markets should constrain the rebound in steel demand over the next 12 - 18 months. The domestic market has shown supply discipline but global overcapacity and lack of discipline elsewhere has limited pricing power while bidding up raw material prices.World Steel Tube The editor was informed
Adequate Liquidity:
U.S. Steel generated operating EBITDA of $887 million and $263 million of free cash flow after capital expenditures of $650 million and dividends of $29 million for the latest 12 months (LTM) ended March 31, 2013. As of March 31, 2013, cash on hand was $733 million; total debt was $3.9 billion; the $875 million inventory facility maturing July 20, 2016 and the $625 million receivables facility maturing July 18, 2014 were fully available. The inventory facility has a 1.00:1.00 fixed-charge coverage ratio requirement only at such times as availability under the facility is less than $87.5 million.
Total Liquidity of $2.5 billion compares with 2013 guidance of capital expenditure at $750 million, cash pension and other benefits at $550 million, and Fitch estimated net financial costs at $235 million.World Steel Tube The editor was informed
As of Dec. 31, 2012, defined benefit pension plans were under funded by $2.7 billion on a GAAP basis. Pension and other post-employment benefit costs were $512 million for 2012 and cash payments were $707 million including the $140 million voluntary contribution to the main U.S. defined benefit pension plan. Costs guidance for 2013 is $440 million. The company has voluntarily contributed $140 million per year to the main defined pension plan over each of the past seven years. U.S. Steel expects that it will not be required to make mandatory contributions through 2016 as long as it makes $140 million in annual voluntary contributions and assuming future asset performance is consistent with U.S. Steel's long-term return assumption of 7.75% on its U.S. pension assets.World Steel Tube The editor was informed
Fitch expects leverage to remain below 4x through 2013 with scant debt repayment. Near-term scheduled maturities of debt are $2 million in 2013; $321 million in 2014; and $190 million in 2015. The 2014 maturity is a convertible issue with an initial conversion price of $31.875 per share.
Fitch expects EBITDA of at least $1 billion and negative free cash flow generation as much as -$160 for 2013. Fitch believes that U.S. Steel's liquidity is sufficient to support operations should the recovery remain weak for the next 12-18 months.
The Stable Outlook reflects Fitch's view that U.S. Steel's liquidity is sufficient to support operations should the recovery remain weak for the next 12-18 months.World Steel Tube The editor was informed
Disclaimer: The above "Fitch Affirms U.S. Steel's IDR at 'BB-'; Outlook Stable" header information shown by the enterprises themselves, the authenticity of the content, accuracy and legitimacy of responsibility by the publisher. China Steel Harbor does not undertake any guarantee responsibility.
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