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August 2, 2011 Dear Friend,
We are very encouraged at record world
steel demand, where we estimate a 9% gain from record 2010 levels. Further,
the decline from $875 March to $680 August hot-rolled sheet prices has
improved the competitiveness of U.S. producers in world markets, where
exports should rise and imports should fall. Iron ore, steel scrap, coking
coal, energy and other input costs remain high, and there appears to be
little risk of hot-rolled sheet spot prices falling below $600 to put the
company into the red.
Instead, we expect a combination of higher exports, lower imports with much lower domestic prices, maybe a furnace or two shut and gradually improving demand to cause profit rebounds in 2012 and 2013 after a soft 2011 second-half. We last recommended U.S. Steel at $31 and $36 in the 2009 second-half, but we believe in 2012 U.S. Steel will break into the black and stay there with a reasonably solid margin We are optimistic that potential exists to raise our 2012-2015 earnings estmates and $48 price target. Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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