U.S. Steel: Under-Stimulated Steel

For all the anticipation about how President Obama's stimulus plan would create the largest infrastructure build-out in U.S. history, early analysis of the bill that passed the House of Representatives yesterday suggests that the country's industrial base may have been severely short-changed.

For struggling domestic steelmakers like United States Steel (NYSE: X  ) and Schnitzer Steel (Nasdaq: SCHN  ) , indications that only 5% of the $819 billion package would fund infrastructure investments can hardly come as welcome news. Just this week, U.S. Steel reported a sharp 66% decline in fourth-quarter earnings over the third quarter, and projected an operating loss for the first quarter of 2009. 

To be sure, the 3,500 workers who have been furloughed from its mills in recent months were looking to the Obama stimulus to kick-start some demand. Already operating at 45% of capacity, with shipments and prices both expected to continue dropping, U.S. Steel is likely disappointed by this uninspiring infrastructure allocation.

With a market capitalization of $4 billion -- much smaller than rival Nucor (NYSE: NUE  ) -- and more than $3 billion in long-term debt, U.S. Steel's liquidity position may not be stainless. I perceive Nucor to be in a position of relative strength, which could result in the company absorbing market share if smaller players run into trouble.

Investors in a broad range of infrastructure plays may have reason for concern with the present stimulus plan as well. With the Congressional Budget Office estimating that only about $26 billion would be allocated for infrastructure during 2009, that translates into slim pickings indeed for cement giant Cemex (NYSE: CX  ) , reeling refiners like Valero (NYSE: VLO  ) , and runaway freight trains like Norfolk Southern (NYSE: NSC  ) and Burlington Northern Santa Fe (NYSE: BNI  ) .

After scrutinizing the stimulus bill, I will provide further commentary about its potential impact in the days to come. I can give you a hint, however: It's not looking very good. In contrast, China's truly massive infrastructure investments will provide a fascinating means to track the success of the two disparate approaches in real time. 

As difficult as it is to bet on the away team, I believe the Obama stimulus plan, as currently proposed, essentially seals the contest and leads this Fool to look exclusively to Asia for the first signs of global economic recovery. For domestic bellwethers such as U.S. Steel, it may be time to hunker down beneath a solid steel defensive bunker.

Further Foolishness:

More than 1,400 CAPS members, including 291 All-Stars, expect four-star United States Steel to outperform the S&P 500. Will you follow the Fools, or blaze your own trail? Join the free CAPS community today and share your own thoughts about U.S. Steel.

Fool contributor Christopher Barker keeps wondering if he'll wake up and discover the entire 2008-2009 global financial collapse was just a bad dream. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Valero Energy. Cemex is a Motley Fool Global Gains and a Stock Advisor pick. The Fool owns shares of Cemex. Try any of our Foolish newsletters today, free for 30 days.

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  • Report this Comment On January 29, 2009, at 5:19 PM, atavistavatar wrote:

    This article contain the first hard assessment of the House of Representatives stimulus bill I have seen. Nice job. And succinct

  • Report this Comment On January 29, 2009, at 5:24 PM, alpinesailor wrote:

    Christopher,

    Good article, but what think you of the fact that we still need highways (and highway repair), fuel for transportation of goods by truck or rail, and the consequent need for asphalt, cement, steel and other associated "unglamorous" commodities?

    A.

  • Report this Comment On January 29, 2009, at 6:11 PM, XMFSinchiruna wrote:

    Hi alpinesailor,

    You're absolutely right, we do need all of those things. As a nation we have neglected our infrastructure severely for more than 30 years, in part, I believe, because of political expediency. And that is precisely what I think happened to the stimulus plan... as necessary as infrastructure investment is, it does not carry the curb appeal of many other types of allocations that a politician can leverage for political capital.

    That being said, the fact that our infrastructure may begin to crumble does not in itself create the demand for related products and services unless there is money allocated to the task. With states and cities in horrendous fiscal condition across the country (some obviously worse than others), and given the scale of investment that is now needed both to salvage our infrastructure AND jump-start key sectors of our economy, I see no other viable source of funding.

    Therefore, if this bill is passed into law as is, the work simply will not get done unless... sadly... they resort to ANOTHER stimulus bill down the road to rectify this enormous blunder.

    That's just one Fool's opinion, but there you go. :)

    Fool on!

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