Can U.S. Steel Catch Up to ArcelorMittal and Nucor?

U.S. Steel (X 1.56%) will release its quarterly report on Tuesday, and investors have hoped that the worst could be over for the steel industry. Yet even as rivals Nucor (NUE 1.81%) and ArcelorMittal (MT 0.08%) have seen some signs of relative strength, U.S. Steel recently had some bad news that could force it to play catch-up to participate in a long-awaited steel recovery.

U.S. Steel is just one of the companies that have gotten hit hard by the fall in global construction and infrastructure activity, with slowdowns in growth among emerging-market countries playing an especially big role in the drop in steel demand. Yet a big gain in sales of cars and trucks, along with a potential end to the recession in Europe, could give U.S. Steel avenues for greater sales growth. Yet can U.S. Steel ever regain the importance it once had and overshadow global industry giant ArcelorMittal and mini-mill specialist Nucor? Let's take an early look at what's been happening with U.S. Steel over the past quarter and what we're likely to see in its report.

Stats on U.S. Steel

Source: Yahoo! Finance.

Why is U.S. Steel losing money?
In recent months, analysts have gotten much less enthusiastic about U.S. Steel earnings, doubling their loss projections for the third quarter and slashing their 2014 estimates by almost a third. The stock, though, has ignored those concerns, with shares rising 25% since late July.

U.S. Steel's second-quarter results showed the struggles that the steel industry has seen lately. Revenue fell almost 12% from the year-ago quarter, and the company lost money for the second quarter in a row. Furthermore, the company gave mixed guidance for the third quarter, expecting better results for its flat-rolled and tubular segment but worse results for its European segment because of a scheduled blast-furnace outage.

One big problem that U.S. Steel and ArcelorMittal in particular have had to deal with is the rise of Chinese steel production. State-run Chinese steelmakers have produced huge amounts of metal even as China's growth in steel use has slackened, putting pressure on global prices and making it far more difficult for ArcelorMittal to earn sales from the emerging-market nation. Even recent decisions from the Chinese government to cut steel production haven't yet caused a big positive impact for foreign companies, and U.S. Steel needs renewed demand without corresponding supply increases to boost global pricing to see its results improve.

More recently, some signs of a steel turnaround have emerged. The World Steel Association predicted that consumption would expand 2.9% this year, with Brazil and the rest of South America leading the way with expected jumps of more than 6% for the continent. Unfortunately, U.S. Steel isn't in the best position to profit directly from greater Latin American demand, as it has little production capacity outside the U.S. and therefore has to rely on secondary impacts in pricing to push profits higher. Even domestically, it has to fight Nucor's strong local presence, and that's a tough assignment given Nucor's highly successful business model that has allowed it to keep earning profits even under poor conditions.

Just a week ago, U.S. Steel said that it would have to take a charge of $1.8 billion against earnings to restate the value of its steel-production assets. The move reflects the ongoing problems in the industry, indicating that U.S. Steel believes the current value of the assets on its books is higher than their fair value.

In the U.S. Steel earnings report, watch to see how the company's guidance compares with what its peers are saying about the market. U.S. Steel needs an American economic recovery, and until it comes, the company could have trouble prospering.

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