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The shale boom has been a boon to U.S. Steel – the company manufactures tubular products needed for drilling.Jeff Kowalsky

After years of despair that left shareholders reeling, United States Steel Corp. is regaining at least some of its former might.

Once a pillar of the American economy, the company's long-slumping stock has been one of the hottest large caps over the past three months.

That could be just the beginning of a return to form for a stock riding an organizational and industry transformation.

"The potential for transformational change at U.S. Steel is one of the most intriguing stories in the U.S. steel sector at the moment," Credit Suisse analyst Nathan Littlewood said in a recent note. "The company's raw material cost advantages as well as privileged steel price environment should position U.S. Steel as one of the most profitable steel makers in the world."

A century ago, U.S. Steel was known on Wall Street simply as "The Corporation" by virtue of its size alone.

More recently, the company benefited from the demand for resources fuelled by China's rise. The vast quantities of steel required for the building of cities and infrastructure kept prices high through the early 2000s.

The financial crisis snuffed out the global growth needed for a buoyant steel market. And with China consuming half of the world's steel, a slowdown in Chinese growth over the past couple of years has extended price weakness. Meanwhile, the excessive global capacity that rose to sustain rapid global growth continues to weigh on the commodity.

Sinking steel prices exposed U.S. Steel's inefficiencies and high costs. In every one of the company's five fiscal years since the financial crisis, it has posted losses.

Between June, 2008, and April, 2013, shares of U.S. Steel fell from about $192 (U.S.) to $16. That descent wiped out about $20-billion in market value.

The company, and the industry in general, had little to offer investors over the past couple of years. But an improvement in the U.S. economy of late has eased the pressure on the steel market.

"Large investments in shale gas have ushered a renaissance in U.S. manufacturing," Frederic Bastien, an analyst at Raymond James said in a note. Steelmakers have benefited from the shale boom by providing the tubular products needed for drilling.

Meanwhile, "the long-awaited recovery in non-residential construction has started soaking up big tons of plate from steel mills," Mr. Bastien said.

Improvements on the demand side are coinciding with new restrictions on foreign supply. A number of recent trade disputes, including anti-dumping duties against South Korea and other steel producers the U.S. International Trade Commission approved in August, are effectively raising import pricing, elevating the domestic price of steel for producers such as U.S. Steel.

"Effective trade barriers force us to spend more time concentrating on the domestic market and less time on the global market," Mr. Littlewood said.

These aligning forces find U.S. Steel in a more disciplined state. The company's "Carnegie Way" cost-cutting plan, named for the company's founder Andrew Carnegie, is expected to save $435-million this year, and more in the years ahead. (This program included the shuttering of the former Stelco blast furnace in Hamilton last year.)

Additionally, the price of iron ore, which is the main input in steel production, is at five-year lows. On top of that, U.S. Steel enjoys access to one of the cheapest sources of iron ore in the world, Mr. Littlewood said. The company is moving toward a vertically integrated iron ore model through interests in mines in Minnesota and Michigan.

This model could give U.S. Steel the ability to produce "some of the lowest cost steel in North America," Mr. Littlewood said. "Success could mean a multi-billion dollar earnings opportunity."

In August, Mr. Littlewood doubled his price target on U.S. Steel to $50 from $25, which makes him more optimistic than the consensus target at 38.75. So by his take, even though the stock has risen by 75 per cent in the last three months, Friday's closing price of $39.92 still leaves plenty of potential upside.

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