US Steel Concerned about Vulnerability to Market Cycles

Case Type: operations strategy.
Consulting Firm: Towers Watson 2nd round job interview.
Industry Coverage: Mining & Metals Production.

Case Interview Questions #00104: Your client United States Steel Corporation (NYSE: X, more commonly known as U.S. Steel), is an integrated steel producer with major production operations in the United States, Canada, and Central Europe. US Steel operates a steel mill in Chicago, Illinois and is concerned about vulnerability to market cycles. What should it do?

Additional Information: (to be given to you if asked for)

1. Fixed costs are 50% of total costs.

2. Demand for steel is highly cyclical. Demand in the trough of a recession can be as low as 70% of the demand at the peak of the business cycle.

3. The market pressures the company to pay out excess cash in the form of dividends during upturns in the economy. The dividend as of 2008 was $0.30 per share. As of April, 2009, it was reduced to $0.05 per share.

4. Labor unions are inflexible with regard to work rule changes.

5. There is increased competition from mini-mills and foreign competitors.

6. The company has been implicated in generating water pollution and toxic waste recently.

7. US Steel had sought to induce the federal government to take action to counteract dumping of steel by foreign producers at below-market prices.

Possible Answers:

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