TEXT-S&P revises United States Steel outlook to negative

June 29 - Overview
-- Industry conditions remain difficult for steel sheet producers as
excess capacity and imports have pressured prices and demand has been uneven.
-- We are revising the outlook on U.S. Steel to negative from stable and
affirming the ratings on the company, including the 'BB' corporate credit
rating.
-- The negative outlook reflects our assessment that deteriorating prices
could result in lower-than-expected operating performance and weaker credit
metrics than we expect for the rating.

Rating Action
On June 29, 2012, Standard & Poor's Ratings Services revised the outlook on
Pittsburgh-based United States Steel Corp. to negative from stable. At the
same, time we affirmed the 'BB' corporate credit rating on the company, as
well as the 'BB' issue level rating (the same as the corporate credit rating)
and our '3' recovery rating on the company's senior unsecured notes. The '3'
recovery rating indicates our expectation of a meaningful (50% to 70%)
recovery in the event of a default.

Rationale
The rating outlook revision reflects our view that the company's operating
performance in 2012 and 2013 could fall short of our expectations because of
deteriorating pricing as a result of excess domestic supply, increased
imports, and lower scrap prices.

The rating on U.S. Steel reflects what Standard & Poor's considers to be the
combination of its "fair" business risk and "aggressive" financial risk. In
our view, the integrated steel producer has capital-intensive operations, is
exposed to highly cyclical and competitive markets, and has a high degree of
operating leverage. Its financial risk profile reflects relatively high levels
of book debt and significant underfunded postretirement benefit obligations.
Our ratings on the company also reflect its "strong" liquidity, good scope and
breadth of product and operations, and the benefits of its backward
integration into iron ore and coke production.

Domestic steel demand and prices have fluctuated significantly over the past
few years. But, overall, U.S. Steel's financial performance has gradually
improved and credit metrics have trended closer to our expectations for the
rating because of better auto production and solid demand for oil country
tubular goods. As of March 31, 2012, debt to EBITDA improved to 4.7x and funds
from operations (FFO) to total debt improved to 18%. (We adjust these measures
for post retirement obligations, operating leases, and asset retirement
obligations.) However, we expect them to weaken in the next few quarters as
sheet pricing seems to be following a similar pattern to the past couple of
years and weakening at midyear.

We now expect 2012 EBITDA will fall below the $1.7 billion to $1.9 billion we
had anticipated at the beginning of the year and may be closer to last year's
$1.3 billion, with credit metrics weaker than what we consider appropriate for
the 'BB' rating. If prices don't firm, debt to EBITDA in 2012 could approach
6x and FFO to total debt could fall to 10% compared with the our expectations
for the rating of debt to EBITDA of about 4.5x and FFO to debt of about 20%.
In our view, conditions should improve somewhat in 2013, reflecting our
expectation for continued slow growth in the U.S. economy. However, if
persistent domestic overcapacity because of slower-than-expected U.S. economic
growth, economic uncertainty in Europe, and slowing steel usage in China
continue to pressure pricing and margins and erode liquidity, we could lower
the ratings.

U.S. Steel is a relatively large player in the highly fragmented global steel
market. It has about 24 million tons of steel capacity in North America and
about 5 million tons of capacity at its operations in the Slovak Republic.
U.S. Steel is also the only integrated steel company in North America that is
primarily self-sufficient in producing iron ore and produces and has long-term
contracts for a majority of its coke needs, which has somewhat limited its
exposure to recent rapid increases in procurement costs. It also has a diverse
product mix that is mostly value added. It's a leading domestic producer of
tubular products (for the oil and gas industry) and tin and other coated-steel
products. However, it is significantly exposed to the volatile flat-rolled
market, with spot sales accounting for about half of its total shipments.

Liquidity
In our view, U.S. Steel's liquidity is strong. Relevant aspects of our
assessment of the company's liquidity profile include:
-- We expect sources of liquidity to exceed uses by 1.5x or more for the
next couple of years;
-- The company is likely to be able to absorb high-impact, low
probability events without refinancing; and
-- The company's maturities are manageable--the next significant maturity
is for its $863 million senior convertible notes in 2014.

As of March 31, 2012, the company had about $2.5 billion in available
liquidity, including $652 million in balance-sheet cash and full availability
on its $875 million revolving credit facility due 2016, which is secured by
inventory. The facility has a springing fixed-charge covenant of 1x if
availability falls to less than $87.5 million. U.S. Steel also has the full
amount available under its $625 million accounts receivable securitization
program that expires in 2014 and about $373 million available on European
credit lines.

For the 12 months ended March 31, 2012, U.S. Steel's adjusted free cash flow
was $1.2 billion after capital spending of about $840 million, and it was
using about $190 million in cash for working capital. We expect capital
expenditures at similar levels for the rest of the year as the company
continues to invest in strategic projects, including construction of new coke
and coke substitute production facilities and upgrades to its tubular
business. As a result, we expect the company to be marginally free cash flow
negative in 2012. We do not expect the company to significantly increase its
dividend, which it reduced to $0.05 per share from $0.30 per share, or to
repurchase shares in the coming months, given still relatively weak operating
conditions and credit measures.

Recovery analysis
For the complete recovery analysis, see our recovery report on U.S. Steel,
published April 2, 2012, on RatingsDirect.

Outlook
The negative rating outlook reflects our expectation that U.S. Steel's
financial risk profile and credit measures are unlikely to improve to levels
we consider more in line with the rating in the coming quarters. In our view,
if conditions continue to be weak in the second half of the year, U.S. Steel
may only generate about $1.3 billion of EBITDA in 2012, with credit metrics
below our expectation for the rating. We expect improvement in 2013 based on
our expectation for continued slow economic growth and relative strength in
the company's key end markets. But slower-than-expected U.S. growth, eurozone
woes, and slowing economic growth in China could pressure demand and pricing
and keep metrics weak. The rating also reflects our view of the company's
strong liquidity, which should be sufficient to fund increased working capital
needs as business expands and as capital spending remains high to fund
strategic projects.

We could lower the rating if market conditions do not improve or if global
economic and political uncertainty throws the economy into recession or causes
weak industry conditions, resulting in the company's liquidity falling below
$1 billion as it uses its available funds to cover operating losses. In this
scenario, we envision credit metrics remaining weaker than our expectations
for the rating.

An upgrade would be contingent on a sustained improvement in market
conditions, allowing the company to improve its debt to EBITDA to less than 3x
and FFO to total debt to more than 30% on a sustained basis. We do not view
this scenario to be likely over the next 12 months.

Related Criteria And Research
-- Key Credit Factors: Methodology And Assumptions On Risks In The Metals
Industry, June 22, 2009
-- Business Risk/Financial Risk Matrix Expanded, May 27, 2009
-- Criteria: Analytical Methodology, April 15, 2008

Ratings List
Ratings Affirmed; Outlook Action
To From
United States Steel Corp.
Corporate Credit Rating BB/Negative/-- BB/Stable/--

Ratings Affirmed

United States Steel Corp.
Senior Unsecured BB
Recovery Rating 3

Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left
column.