The Street reported that US Steel has recently reported the company's first profitable quarter since fourth quarter 2008. However as a result of a softening macro environment and outlook, the stock has slumped around 50% year to date.

Price estimates are revised for US Steel's stock to USD 37 to account for changes in demand, shipments and the price of steel. The new estimate is roughly 35% ahead of the market price.

Macroeconomic concerns, primarily related to the European debt crisis and continued economic weakness in the US, have resulted in a decline in industrial demand for steel as companies are bracing for slower than estimated sales going forward. Unlike ArcelorMittal, US Steel does not have any major operations in Asia or Africa and will therefore see a substantial drop in sales in the next few quarters.

Reduced demand will result in fewer shipments, leading to lower capacity utilization at the company's steel production plants. Given the high fixed cost base related to operating a steel mill, margins will also decline if a plant is not operated at its optimal capacity. Moreover, the price of steel will decline along with demand, which will further hurt the company's margins.

The auto industry is one of the largest consumers of steel, as steel is the most prominent material used in manufacturing automobiles. With the new fuel efficiency standard set by the Federal Government, auto manufacturers are testing out new materials that can be substituted for steel to reduce the weight of vehicles and in turn increase their fuel efficiency. In order to protect their market share, steel manufacturers are in a race to come up with lighter alloys that can be substituted for steel.

(Sourced from www.thestreet.com)