Derivative Instruments

12 Months Ended

Dec. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

16. Derivative Instruments

U. S. Steel is exposed to foreign currency exchange rate risks in our European operations. USSE’s revenues are primarily in euros and costs are primarily in euros and U.S. dollars (USD). U. S. Steel uses foreign exchange forward sales contracts (foreign exchange forwards) with maturities no longer than 12 months to exchange euros for USD to manage our currency requirements and exposure to foreign currency exchange rate fluctuations. Derivative instruments are required to be recognized at fair value in the Consolidated Balance Sheet. U. S. Steel did not designate euro foreign exchange forwards entered into prior to July 1, 2019, as hedges; therefore, changes in their fair value were recognized immediately in the Consolidated Statements of Operations (mark-to-market accounting). For those contracts, U. S. Steel recognized changes in fair value immediately through earnings until all of the contracts matured in July 2020. The USSE and Flat-Rolled segments use hedge accounting for their foreign exchange forwards. The Mini Mill segment has not elected hedge accounting; therefore, the changes in the fair value of their foreign exchange forwards are recognized immediately in the Consolidated Statements of Operations (mark-to-market accounting).

U. S. Steel may use fixed-price forward physical purchase contracts to partially manage our exposure to price risk related to the purchases of natural gas, zinc and tin used in the production process. Generally, forward physical purchase contracts qualify for the normal purchase and normal sales exceptions described in ASC Topic 815 and are not subject to mark-to-market accounting. U. S. Steel also uses financial swaps to protect from the commodity price risk associated with purchases of natural gas, zinc, tin, electricity, and iron ore pellets (commodity purchase swaps). We elected cash flow hedge accounting for domestic commodity purchase swaps for natural gas, zinc, tin, iron ore pellets and use mark-to-market accounting for electricity swaps and for commodity purchase swaps used in our European operations.

In accordance with the guidance in ASC Topic 820 on fair value measurements and disclosures, the fair value of our foreign exchange forwards, commodity purchase swaps and sales swaps was determined using Level 2 inputs, which are defined as "significant other observable" inputs. The inputs used are from market sources that aggregate data based upon market transactions.

The table below shows the outstanding swap quantities used to hedge forecasted purchases and sales as of December 31, 2021, and December 31, 2020:


Hedge Contracts	Classification	December 31, 2021	December 31, 2020
Natural gas (in mmbtus)	Commodity purchase swaps	40,498,000	38,801,400
Tin (in metric tons)	Commodity purchase swaps	1,648	812
Zinc (in metric tons)	Commodity purchase swaps	7,167	25,361
Electricity (in megawatt hours)	Commodity purchase swaps	810,720	760,320
Iron ore pellets (in metric tons)	Commodity purchase swaps	30,000	—
Iron ore pellets (in metric tons)	Zero-cost collars	1,296,000	—
Hot-rolled coils (in tons)	Sales swaps	157,120	120,000
Foreign currency (in millions of euros)	Foreign exchange forwards	€308	€242
Foreign currency (in millions of dollars)	Foreign exchange forwards	$2	—

The following summarizes the fair value amounts included in our Consolidated Balance Sheets as of December 31, 2021, and December 31, 2020:


(In millions) Designated as Hedging Instruments	Balance Sheet Location	December 31, 2021		December 31, 2020
Sales swaps	Accounts receivable	$	10	$	—
Sales swaps	Accounts payable	30		26
Sales swaps	Investments and long-term receivables	1		—
Commodity purchase swaps	Accounts receivable	17		5
Commodity purchase swaps	Accounts payable	29		10
Commodity purchase swaps	Investments and long-term receivables	1		—
Commodity purchase swaps	Other long-term liabilities	4		—
Foreign exchange forwards	Accounts receivable	15		—
Foreign exchange forwards	Accounts payable	—		18
Not Designated as Hedging Instruments
Commodity purchase swaps	Accounts receivable	5		—
Commodity purchase swaps	Investments and long-term receivables	5		1

The table below summarizes the effect of hedge accounting on AOCI and amounts reclassified from AOCI into earnings for 2021, 2020, and 2019:


	(Loss) Gain on Derivatives in AOCI							Amount of (Loss) Gain Recognized in Income
(In millions)	2021		2020		2019		Location of Reclassification from AOCI (a)	2021		2020		2019
Sales swaps	$	7	$	(26)	$	1	Net sales	$	(170)	$	—	$	(1)
Commodity purchase swaps	(11)		17		(6)		Cost of sales (b)	57		(24)		(19)
Foreign exchange forwards	33		(17)		1		Cost of sales	(3)		(7)		(1)

(a) The earnings impact of our hedging instruments substantially offsets the earnings impact of the related hedged items resulting in immaterial ineffectiveness.

(b) Costs for commodity purchase swaps are recognized in cost of sales as products are sold.

The table below summarizes the impact of derivative activity where hedge accounting has not been elected on our Consolidated Statements of Operations for 2021, 2020 and 2019:


		Amount of (Loss) Gain Recognized in Income
(In millions)	Consolidated Statement of Operations Location	2021	2020	2019
Commodity purchase swaps	Cost of sales	19	(1)	—
Foreign exchange forwards	Other financial costs	2	—	17

At current contract values, $3 million in AOCI as of December 31, 2021 will be recognized as an decrease in cost of sales over the next year and $20 million in AOCI as of December 31, 2021, will be recognized as a decrease in net sales over the next year. The maximum derivative contract duration for commodity purchase swaps is 13 months, the maximum duration for sales swaps is 13 months and the maximum derivative contract duration for commodity purchase swaps where hedge accounting was not elected is 25 months.