| Tubular segment is the most profitable for US Steel
Previously we have seen the profit per ton that US Steel’s tubular segment generates. It’s the most profitable reporting segment of the company.
US Steel (X) has announced a new management structure for its business. The new structure will begin January 1 , 2015. However, the new management structure will not have any impact on the company’s reporting structure. Let’s now look at the profitability of tubular operations in detail.
Tubular segment forms a big chunk of US Steel’s profits
The above chart shows the contribution of the tubular segment to US Steel’s revenues, as well as operating profits. As you can see, the tubular segment contributes ~16% of US Steel’s revenues. However, its contribution to US Steel’s operating profits is very volatile. In 2Q13, the tubular segment accounted for more than 90% of US Steel’s operating income.
There are two main reasons why the tubular segment is the biggest contributor to US Steel’s profit. First of all, tubular operations generate higher profit per ton, compared to other segments. We saw this in the previous part.
Secondly, the flat-rolled segment, which is US Steel’s biggest segment by revenues was suffering from low profitability. However, there has been a turnaround in the flat-rolled segment under US Steel’s Carnegie Way program.
ArcelorMittal (MT) is also trying to address its long-term profitability under its management gains program. These moves should help MT compete better with mini mills like Nucor (NUE) and Steel Dynamics (STLD). Currently both Nucor and Steel Dynamics are among the top holdings of the SPDR S&P Metals and Mining ETF
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