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Inferring Steel Prices from an EV-to-EBITDA Multiple

Article Quant Q&A · Author: curious
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Summary

The document asks how a news report inferred a hot-rolled coil steel price of about $650 per ton from U.S. Steel’s forward enterprise value-to-EBITDA multiple of 4.4. It contrasts that implied price with steel futures near $825 per ton at the time, in the context of a sharp decline in steel stocks. The underlying idea is to use a company valuation multiple and operating earnings expectations to infer the commodity price consistent with the market’s valuation.

However, the text provides no calculation, EBITDA assumptions, production or cost estimates, or explanation of how the multiple maps to a steel price. It is therefore a valuation question rather than a worked method. Any inference would depend on company-specific assumptions and the relationship between steel prices, margins, and earnings, which the excerpt does not specify.

Key ideas

  • A forward EV-to-EBITDA multiple can be discussed alongside an implied commodity price for a producer.
  • The excerpt reports an implied steel price and a higher contemporaneous futures price.
  • It does not provide the assumptions or steps needed to reproduce the implied-price calculation.

Tags

EquitiesCommoditiesFutures
Full text
# How is this steel price implied based on enterprise value-to-Ebitda?


# How is this steel price implied based on enterprise value-to-Ebitda?












How was the steel price of $650 per ton calculated based on the forward-looking enterprise value-to-Ebitda in this Bloomberg news article?

https://www.bloomberg.com/news/articles/2018-03-23/tariff-triggered-rout-in-steel-stocks-opens-up-unusual-value-gap

> Case in point: U.S. Steel Corp., one of the country’s biggest producers. Its shares are trading at 4.4 times forward-looking enterprise value-to-Ebitda after tumbling 25 percent this month, matching the NYSE Arca Steel Index’s decline. That implies a hot-rolled coil steel price of about 650 per ton.Futures prices as of March22 were around 825 per ton.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.