| August 2006 |
| Second Quarter Report and Outlook: Mills |
| What Slowdown? |
|
Strong second-quarter financial results from leading steel and aluminum producers belie widespread reports that the economy is slowing down. Following is a roundup of industry producers’ latest conference calls with analysts and investors. By the Staff of Metal Center News Sidebars and Tables:
AK Steel “Our 6.5 million in annual tons shipped ranks us as the third largest integrated steel producer in the United States. While that size is clearly not the largest, in our chosen markets—automotive exposed, auto chrome and electrical steels—we are at or near the top among industry leaders,” he continued. “To all those who have postulated rumors about AK Steel, we are not for sale. This is a company that is standing alone, and we hope to do so more profitably. That is why we have attacked on all fronts, including customer agreements, labor agreements, and our raw material and energy strategies.” While operating its Middle-town mill with temporary workers due to the March 1 lockout of union employees, AK Steel reported net income of $29.1 million for second-quarter 2006. Net sales were a record $1.497 billion, a 3 percent increase from the year-ago quarter, on shipments of 1,599,100 tons, compared to 1,610,500 tons shipped in the second quarter of 2005. Operating profit was $63.0 million, or $39 per ton, compared to $74.2 million, or $46 per ton, for the second quarter of 2005. The company said that its average selling price was $936 per ton in second-quarter 2006, up from $903 per ton in second-quarter 2005. “AK Steel’s strong operating and financial performance across the board makes the second quarter of 2006 a defining quarter in what is a defining year for our company,” Wainscott told analysts and investors. “By the end of the quarter, our temporary workforce was operating nearly every unit at Middletown Works at or above the levels prior to the onset of the labor dispute. In fact, the plant’s hot-dip galvanizing line set a production record June 23 that is unmatched in the 49-year history of that line.” Negotiations continue with the AEIF, the independent union representing hourly Middletown Works employees, to reach a competitive new labor agreement following the Feb. 28 expiration of the previous contract. The company said that, despite some movement on the part of the AEIF recently, the parties remain apart on crucial issues such as wages, benefits and workforce restructuring. “Despite the slow progress in our Middletown contract talks, we continue to make strides to address the total employment cost disadvantage we face relative to our competitors,” Wainscott said. Since 2003, AK Steel has negotiated eight competitive new labor agreements with three different unions representing all of AK Steel’s hourly production and maintenance employees, with the exception of the Middletown Works. Each of these industry-pattern labor deals includes the elimination of a guaranteed minimum base labor force, which provides the potential for significantly smaller workforces; fewer job classes, which is the great enabler to workforce flexibility; affordable and secure pensions; and employee and retiree health care cost sharing, Wainscott said. “We are prepared to operate in the current fashion at Middletown for as short or as long as it takes to reach a new competitive labor agreement with the AEIF,” he added. “Getting our labor costs in line is a critical element of our success in 2006 and beyond.” For the first six months of 2006, the company reported net income of $35.3 million. Net income for the corresponding 2005 period was $68.2 million. First-half 2006 sales were a record $2.933 billion, compared to $2.877 billion for the same period in 2005. The company reported an operating profit for the first six months of 2006 of $92.4 million, or $30 per ton, compared to $187.8 million, or $60 per ton, for the prior year period. AK officials said they expect third-quarter results to improve on the second quarter, with higher contract and spot pricing and declining operating costs. Alcoa He acknowledged that Alcoa has benefited from high aluminum market prices, but also its own productivity gains. “We are especially pleased with the sustained high level of operational performance of most of our businesses,” Belda said. Even with a $35 million after-tax negative charge for strike preparation and settlement, Alcoa posted a net income of $744 million in the second quarter, up 61.7 percent from second-quarter 2005 and 22.4 percent from the previous quarter. For the first half, the company posted a net income of $1.4 billion—87.8 percent higher than the first six months of last year. Alcoa’s second-quarter sales, at just under $8 billion, were the highest quarterly revenue in the company’s history, up 18.9 percent from a year earlier and 9.9 percent from the first quarter of this year. Belda expects strong operational performance across all segments in the third quarter, though not as strong as first- and second-quarter growth due to traditional seasonal factors. “However, we should have a much higher level of profitability than we had in prior years,” he added. Alcoa reported several operational milestones in the second quarter—its alumina segment set a quarterly production record in tons per day, its Texarkana rolling mill achieved record production levels and its engineering solutions segment saw a record quarterly profit. The aluminum producer also continued to take action to profitably grow its business and manage its portfolio, Belda said. It formed a joint venture in Kunshan, China, (near Shanghai) to produce aluminum brazing sheet for the Chinese automotive market; signed a memorandum of understand with Vietnam National Coal and Mineral Industries Group (Vinacomin) to explore the feasibility of creating a joint venture to develop a bauxite mine and alumina refinery in Vietnam; opened its first plant in Bulgaria (a consumer products plant to produce household wrap products); and established a business unit in Johannesburg, South Africa, to sell and market aluminum forged truck wheels in Africa. Also during the quarter, Alcoa acquired a minority interest in its Eastalco and Intalco aluminum smelters, announced plans to divest its home exteriors business and continued to review options for its soft alloy extrusion businesses. “We’ve had consistent production growth in our upstream businesses, as well as significant productivity and operational excellence gains in our flat-rolled products and engineered solutions segments, and improved performance from our extruded, end-products, and packaging and consumer segments through sustainable productivity gains,” said Joseph Muscari, executive vice president and chief financial officer. Looking forward, he added, “We remain positive about the underlying strengths of our markets, although we do expect to experience some normal seasonality effects in some of our downstream businesses driven by the normal European holiday slowdown and the automotive shutdowns in the summer months.” Allegheny Technologies Inc. For the six months ended June 30, net income was $242.9 million on sales of $2.25 billion, vs. net income of $152.7 million on sales of $1.78 billion for the same period last year. “ATI continued to demonstrate strong profitable growth results and future earnings power,” said L. Patrick Hassey, chairman, president and CEO. “Sales grew by 34 percent compared to second-quarter 2005 and were 16 percent higher than first-quarter 2006. Income before tax more than doubled to $203.5 million. Net income increased by 53 percent to $140.4 million.” Segment operating profit reached 21 percent of sales as operational execution continued to improve. Operating profit in the High Performance Metals segment was nearly 35 percent of sales, the company reported. Despite volatility in the cost of raw materials, operating profit in the Flat-Rolled Products segment improved to nearly 13 percent of sales, while operating profit in the Engineered Products segment was just under 14 percent of sales. “Each of our business units is hitting on all cylinders, and each unit is implementing aggressive growth initiatives,” Hassey said. “Our key growth markets, namely aerospace and defense, chemical process industry, oil and gas, electrical energy and medical, remain strong, representing just over 63 percent of ATI’s year-to-date 2006 sales.” ATI’s cash flow continued to support a self-funded growth strategy. Capital investments in the first half of 2006 totaled $102 million, 82 percent of which were directed towards increasing its high-value products capabilities. “We remain focused on reducing costs in 2006 and achieved gross cost reductions of $34 million in the second quarter, bringing year-to-date cost reductions to $62 million. Our 2006 cost reduction target is $100 million,” Hassey said. He reported that ATI’s strategic investments for growth in titanium and titanium alloys, and nickel-based alloys and superalloys, are on track. Phase I of the Albany, Ore., titanium sponge facility is now fully operational and is expected to be producing sponge at an annualized rate of 7.5 million pounds in the second half of 2006. Albany Phase II and Phase III are progressing. In addition, ATI’s board has approved construction of a greenfield titanium sponge facility in Utah. The company’s titanium melt expansion projects are also progressing. New nickel-based alloy remelt furnaces at the Latrobe, Pa., and Lockport, N.Y., facilities were successfully started in July. Shipments of high-value products from these strategic investments should begin in the fourth quarter. “This step-up in ATI’s production capacity is well-timed,” Hassey said, based on discussions with aerospace and defense customers who anticipate a significant step-up in demand for ATI’s titanium and nickel-based superalloy products. “Looking ahead, we see no seasonal slowing in the third quarter,” he added. “Demand from our key markets remains very strong for high-performance metals and flat-rolled products. Recent price increases for our flat-rolled stainless products are further evidence of the continued strength in the markets for these products.” Arcelor-Mittal Mittal Steel Co. N.V. reported income of $1.02 billion, a 49 percent increase from its first-quarter performance of $743 million. Sales were also up significantly in the second quarter, increasing 9.4 percent from $8.43 billion to $9.23 billion in the period. “We are delighted to report a very strong set of results for the second quarter, with operating income increasing some 49 percent compared with the first quarter. This improvement is due to improved market conditions in all three of our main operating regions,” said Lakshmi N. Mittal, chairman and CEO. In the Americas, Mittal cited increases in demand and spot prices resulting in a 33 percent increase in income. In Europe, price increases and stable costs despite raw material increases led to a 14.3 percent increase in income. Asia’s 10 percent income increase was aided by strong underlying demand and Chinese price recovery. “As we anticipated in May, the recovery is now under way in Asia resulting in higher selling prices. Additionally, we have delivered a strong performance in Europe, particularly in the Ukraine where synergies are now being delivered, and in America, where costs have been reduced,” Mittal said. Though income was up compared to the first quarter, it was down 6.8 percent from the $1.09 billion posted during the same period in 2005. Sales, however, were up 21.3 percent from the year-earlier period. Total steel shipments in the Americas region were 6.9 million tons in the three months ended June 30, as compared with 6.8 million tons for the three months ended March 31, primarily due to improved market conditions for products, particularly in Mexican operations. Additionally, shipments were up from the 5.4 million tons shipped during the same period in 2005, due largely to the inclusion of ISG. The effect of these improved market conditions was partly offset by reduced shipments at Mittal Steel USA resulting from a fire in its Indiana Harbor facility in East Chicago on April 28, which halted production in one of the steelmaking shops. Additionally, Mittal Steel USA’s Sparrows Point facility faced severe production issues following a lightning strike at an electrical substation during a storm on June 23. Sparrows Point is expected to lose approximately 250,000 tons of ironmaking as a result of the incident. At Arcelor, revenues were up in the second quarter, but income was down compared to the first quarter of 2006. Quarterly revenues increased 9.0 percent to $12.51 billion from $11.48 billion posted during the first three months of 2006. Earnings were off 14.2 percent in the quarter, falling from $913 million to $784 million. The earnings fall compared to the first half of 2005 was even worse, as Arcelor’s $1.70 billion was 28 percent behind the $2.36 billion posted during the first six months of 2005. Arcelor officials were pleased with the company’s performance, citing massive raw material price increases, including iron ore, zinc and coal, coupled with lower sales prices, which contributed to the earnings drop from the previous year. They expected prices to increase in the second half of 2006. “Between the first half of 2005 and first half of 2006, the price cost squeeze represented more than $1.5 billion,” said Gonzalo Urquijo, senior executive vice president. On Aug. 4, Arcelor Mittal appointed Roland Junck as CEO as part of the new company’s six-person management team. Junck had served as senior executive vice president of Arcelor’s Group Management Board since the company’s creation in 2002. Since 2006 he has held responsibility for Long Carbon Steel Europe, Long Carbon Steel South America, Wire Drawing and Co-ordination China. Aditya Mittal was appointed CFO, with the additional responsibility for the Flat American business. Other management board appointees, who represented two choices from Arcelor and two from Mittal, are:
The earnings reports were likely the last to be delivered separately for the companies, as the integration of Arcelor-Mittal has begun (see related story in Metal Industry News). Carpenter Technology Corp. Net sales for the fourth quarter ended June 30 were $450.5 million, compared with $362.4 million for the same quarter a year ago. Net income in the fourth quarter was $68.0 million, compared to net income of $47.8 million a year ago. Net sales for fiscal 2006 were $1.57 billion, compared with $1.31 billion, for the previous fiscal year. Net income for fiscal 2006 was $211.8 million, compared with net income of $135.5 million for the previous fiscal year. “Our continued focus on operational excellence through lean and variation reduction and on producing high-value, high-performance materials helped us to achieve a record fourth quarter and another record fiscal year,” said Robert J. Torcolini, chairman, president and CEO. “These efforts, combined with favorable market conditions, allowed us to surpass last year’s fourth-quarter earnings by more than 40 percent. “Sales to the aerospace market were particularly strong, increasing more than 70 percent from the quarter a year ago. Results also benefited from increased sales of higher value materials to the medical and automotive markets,” he added. Fourth-quarter aerospace market sales increased 71 percent from the fourth quarter a year ago to $193 million. The increase reflected strong demand for specialty alloys used in the manufacture of aircraft engines and titanium used in structural components. This marked the second consecutive quarter in which aerospace sales accounted for more than 40 percent of total Carpenter sales. Medical market sales increased 29 percent to $37 million primarily due to a richer product mix and increased selling prices. Carpenter’s sales to the automotive and truck markets increased 5 percent to $56 million. Sales benefited from increased demand for corrosion resistant materials used in engine components such as fuel injectors and high-temperature materials used for engine valves. Sales to the power generation market increased 5 percent to $14 million. Adjusted for sales of a divested business, sales to this market increased 29 percent in the fourth quarter compared to the same quarter a year ago. Sales to the consumer market of $56 million were essentially flat compared to a year ago. An increase in sales of materials used in durable goods was offset primarily by reduced sales to the sporting goods market. Industrial market sales decreased 4 percent to $94 million. Higher sales to the oil and gas market were offset by reduced sales of marginally profitable products. Geographically, Carpenter’s sales outside the United States increased to $147 million or 38 percent from a year ago, and represented 33 percent of fourth quarter sales. International sales reflected strong demand for higher value materials, particularly in the aerospace and medical markets. “We believe that market conditions will remain favorable in fiscal 2007, particularly for our specialty alloys, titanium and ceramic materials sold into the aerospace market,” Torcolini said. “We expect that sales to the aerospace market will be higher in fiscal 2007 despite the delay in the first commercial delivery of the Airbus A380 and some inventory rebalancing within certain segments of the aerospace supply chain.” Ipsco Inc. “Our strategy to be in several key steel markets continues to provide strong and stable financial results,” said David Sutherland, president and CEO, adding that the company’s various mill improvement projects have been a key factor in its performance this year. Ipsco reported a net income of $156.4 million in second-quarter 2006, up 23.3 percent from $126.9 million a year earlier. This was also the eighth consecutive quarter that Ipsco’s operating income—at $242.9 million—exceeded $200 million. Sales reached $893.6 million during the quarter, up 29.9 percent from second-quarter 2005. In the first half of 2006, Ipsco posted a net income of $307.1 million on sales of $1.8 billion vs. net income of $281.6 million on sales of $1.5 billion during the first six months of last year. Sutherland said the minimill steelmaker is clearly beginning to see the results of its de-bottlenecking efforts, with its plate mills producing 357,000 tons during the quarter, up 26 percent from a year earlier and 9 percent from the first quarter. “The increased production level over last year is primarily the result of the production runs for large-diameter pipe orders. Our small-diameter energy tubular production has been at higher rates for quite some time,” he said. Ipsco’s mill schedule was full through the third quarter and, as of press time, the company had not yet opened up order books for the fourth quarter. Ipsco’s large-diameter pipe production of 78,000 tons for the quarter increased 47,000 tons from a year earlier, creating a significant spiral pipe order book. “We continue our efforts to enhance and improve our production performance to provide the earliest mill availability for future inquiries. Our spiral mills are full through the third quarter of 2007 and our 24-inch ERW (electric resistance welded) mill is full through year-end.” Many capital projects approved last year are now on line and have improved capacity and utilization, he said. In addition, Ipsco has approved $100 million in new capital spending so far this year for tubular and steel mill improvements, cost reductions and capacity expansion. In Mobile, Ala., the new heat-treat facility continues to ramp up. “The normalizing line is now running at full capacity,” Sutherland said. “The quench line was started in the second quarter and production commissioning continues toward lighter gauges.” Projects completed this year in Montpelier, Iowa, have increased liquid steel and rolling mill capabilities there, he said. Ipsco has acquired most of the components for vacuum degasser improvements in Montpelier, to be completed by second quarter 2007. As previously announced, the Regina, Saskatchewan, large-diameter pipe mill is increasing its capacity by 25 percent. “Progress is also being made with our Surrey, British Columbia, cut-to-length line upgrade,” he said, with installation planned in first-quarter 2007. All told, Ipsco will bring on 400,000 to 500,000 tons of additional capacity by 2008, Sutherland said. Capacity at Mobile will be the first to come on stream starting next year; Regina will be the last to come on with its tonnage in 2008. “We’ll be at about 4 million tons of plate capacity at that point,” Sutherland said. Nucor Corp. Despite the rosy financial picture, Chairman, President and CEO Daniel R. DiMicco told investors and analysts that quarterly results will always take a backseat to long-range success at Nucor. “We don’t feel really comfortable with quarterly focus as we’re a long-term focus company,” DiMicco said, explaining the reasoning behind the company’s new method for delivering guidance to investors. He cautioned against overreacting to projected swings in the price of steel and raw materials. “News travels so quickly today, and there are so many knee-jerk reactions. Don’t get caught up in the news of the moment.” Nucor’s consolidated net earnings for the first half of 2006 were $831.9 million, an increase of 23 percent over net earnings of $677.4 million in last year’s first half. Consolidated net earnings of $452.8 million in this year’s second quarter were an increase of 40 percent over $322.7 million earned in the second quarter of 2005 and an increase of 19 percent from the $379.2 million earned in the first quarter of 2006. In the first half of 2006, Nucor’s sales increased 14 percent to $7.35 billion, compared with $6.47 billion in last year’s first half. Average sales price per ton was flat while total tons shipped to outside customers increased 14 percent from the first half of 2005. In the second quarter of 2006, Nucor’s consolidated net sales increased 21 percent to $3.81 billion, compared with $3.15 billion in the second quarter of 2005 and increased 7 percent compared with $3.55 billion in the first quarter of 2006. Average sales price per ton increased 5 percent from the second quarter of 2005 and increased 4 percent from the first quarter of 2006. Total tons shipped to outside customers were a record 5,819,000 tons in the second quarter of 2006, an increase of 15 percent over the second quarter of 2005 and an increase of 4 percent over the first quarter of 2006. Nucor officials expect that the strong start to 2006 will continue going forward. Current orders and backlogs are healthy across all product lines, they said, and the strong business conditions experienced in the second quarter should continue through the third quarter. Business conditions for the marketplace are aided by trends in both nonresidential and residential construction. In building structures, steel’s place in the market has jumped from 47 percent to 53 percent in the last six months. He envisions a similar, if not more spectacular, increase for steel in the residential market. He said steel will become the material of choice for framing in the future. Part of steel’s growth is a result of the devastating effects from natural disasters such as Hurricane Katrina. Steel-framed buildings will withstand hurricanes, high winds and earthquakes better, an increasingly important consideration. But other factors are also important, such as fire safety, absence of termites and mold, he said. “Mold is a big issue, and mold doesn’t grow on steel.” The long-term outlook for Nucor remains positive, he added. “Over the next 10 to 15 years we’ll have more up years than down years, and our up years will be stronger while our down years won’t be as weak.” Oregon Steel “Oregon Steel is pleased to announce record financial performance during the second quarter. All of our market segments performed well during the second quarter and are forecasted to remain strong through the rest of the year,” said Jim Declusin, the company’s president and CEO. Sales for second-quarter 2006 increased 4.4 percent to $349.6 million compared with $335 million in second-quarter 2005. Average sales price per ton in second-quarter 2006 was $889, up from $882 in second-quarter 2005. Oregon Steel’s total shipments for second-quarter 2006 were 393,200 tons, up from 379,600 tons in second-quarter 2005. The change was primarily due to increased shipments of plate and coil, structural tubing, rail and seamless pipe products, partially offset by lower shipments of welded pipe, and rod and bar products. The company’s seamless pipe mill, which was idled in November 2003, was restarted in December 2005 and shipped 21,200 tons of seamless pipe during second-quarter 2006. For 2006, the company expects to ship approximately 1.74 million tons of products and generate $1.6 billion in sales. In the Oregon Steel Division, the product mix is expected to consist of around 520,000 tons of plate and coil, 320,000 tons of welded pipe and 80,000 tons of structural tubing. The RMSM Division expects to ship approximately 415,000 tons of rail, 325,000 tons of rod and bar products and 80,000 tons of seamless pipe. “During the second half of the year, we see our total volume increasing to record levels and our product mix shifting to a greater percentage of higher priced, higher margin energy-related products,” Declusin said. “At the same time, we have recently implemented price increases on selected non-energy-related products such as plate and rod. As a result of the anticipated volume increase and shift in product mix, we expect the second half of the year to result in records for revenue, shipments and operating income for our company.” Steel Dynamics Inc. During the second quarter, SDI posted $96.9 million in net earnings, a 91.2 percent increase from the $50.7 million it posted a year earlier, and a 27.5 percent improvement from the $76 million level in first-quarter 2006. Also during the quarter, the company posted net sales of $821.2 million, up 50.4 percent from second-quarter 2005 and up 23 percent from first-quarter 2006, as well as consolidated shipments of 1.2 million tons, up 41 percent from last year’s second quarter and up 15.7 percent from the previous quarter. These gains resulted from a very favorable business climate in which demand remained strong for the entire portfolio of SDI products, Busse told analysts and investors. “When you look at net sales on an annualized basis, we should exceed $3 billion this year,” he added, partly because of internal organic growth and partly because of the acquisition of the former Roanoke Electric Steel Corp. in April. “We have had very positive performance from the Roanoke assets,” Busse said, though SDI is yet to realize the full effects of changes at Roanoke’s fabricating divisions, including improvements at SDI’s New Millennium business unit as well as integration of Roanoke’s Hancock and Socar facilities. “It is becoming a family, and we are getting better and better,” Busse said. “We have all the fabrication modifications engineered and they are under way or about to be under construction, so we should see very positive results in the next six to nine months, possibly even in the third quarter.” Overall, Busse said he is happy with SDI’s structural division, which has a record backlog extending into the third quarter. “We expect business conditions in nonresidential construction (and demand for wide-flange beams) to remain strong. Therefore, performance at our structural division should remain strong throughout the year.” Site work is already under way, and initial equipment orders have been placed, for a $200 million expansion project at the division’s Columbia City, Ind., structural and rail mill. The project includes a new medium-section rolling mill that will facilitate more cost-effective production of current structural steel products, will free up production capacity for rail production on the existing rolling mill, and will provide the capability to produce new light structural steel products that the company does not currently sell. In addition, construction is proceeding at Columbia City on a rail welding facility to produce rail sections a quarter mile in length, along with construction of Dynamic Composites, a joint venture to manufacture composite railroad ties. “We are very excited about it,” said Richard Teets Jr., vice president and general manager of the structural and rail division. “All the equipment has been delivered. The building is going up and it should be completed in August, allowing us to make ties before the end of the year.” Busse said positive business conditions exist at SDI’s flat-roll division, as well. “While pricing has probably just about peaked, I think we are at a very stable zip code. I don’t expect pricing to change a whole heck of a lot on a go-forward basis.” Strong backlogs have allowed the mill to pass through cost increases, including zinc extras, says Mark Millett, vice president and general manager of the flat-roll division, which should result in an expansion in coated product margins late in August or early in September. Through improvements at the hot-strip mill in Butler, Ind., including upgrading two casters, the mill’s capacity should increase by 400,000 to 500,000 tons to just over 3 million tons annually by 2008. Equipment orders have been placed for the company’s second paint line to be built at Jeffersonville, Ind., to start up in third-quarter 2007. The backlog at SDI’s Pittsboro, Ind., engineered bar products division is in its best shape ever, Busse said. “Some of the damage we might have done relative to not understanding the machinery early in our learning curve has been corrected. Now some of the customers that were disappointed in us have returned and are happy with what they see,” he said. “Our new finishing facility is just getting started,” he added. “While we’ll probably see short-term negatives there, they will be minor. In the third quarter and for the rest of the year, it will be an earnings contributor. We should be able to double the capabilities of our finishing business within 18 months.” Summing up, Busse said: “We have done a lot of work, planted a lot of seeds, and they are all blooming nicely. That includes seeds that are in the greenhouse yet,” he noted, declining to offer specifics. “There are some positive things on the horizon.” U.S. Steel “Solid demand in our key end markets, outstanding operating performance, strong shipments and firming prices, particularly in spot markets, resulted in an excellent second quarter,” U.S. Steel Chairman and CEO John P. Surma told investors and analysts at the company’s second-quarter conference call. “We operated at high rates of production capability in the U.S. and Europe, reflecting an outstanding performance by our people and the benefits of our recent capital programs.” Net sales were also up compared to the previous quarters. Sales totaled $4.11 billion in the second quarter, up 10.1 percent from the $3.73 billion in the first quarter and 14.6 percent above the $3.58 billion posted during the same period of 2005. U.S. Steel got solid performances out of all three of its segments: U.S. Flat-rolled, U.S. Steel Europe and U.S. Tubular Group. Flat-rolled’s increased income was the product of higher average realized prices and shipment volumes. Costs remained in line with first-quarter levels, as lower energy and outage costs were offset by higher raw material costs. Higher prices and record shipments spurred the company’s European segment. Performance for the Tubular Group was off from the first-quarter, primarily due to planned maintenance outages. Surma said the outlook for the next quarter is positive, with healthy steel consumption in all segments and higher flat-rolled prices. “Auto sales and production are at respectable levels,” he said. “Shipments to service centers have been robust, a combination of strong demand from their customers and some inventory rebuilding.” Surma did not believe the inventory rebuilding at the service centers was related to any kind of panic buying, primarily because the steelmaker is following through on its plan for greater transparency with distributors. “Our acknowledged strategy is to have fewer numbers of strong, intimate relationships with service centers such that both of us have a lot riding on being very transparent and open with how we do business. I hope we’re doing a fairly good job of providing our service-center customers with what they need, and their results tend to support that. “What we’re trying to do is build a relationship where our production and their market hit a sweet spot and we can both make money,” he added. “It’s really the nature of the relationship that’s changed more than the number of [service center] customers.” While mergers affecting all of U.S. Steel’s segments took place during the quarter, including the Mittal-Arcelor and the Tenaris-Maverick deals, U.S. Steel was merely a spectator. That could change, Surma said, as U.S. Steel considers its options. “But we don’t want to get bigger for the sake of getting bigger. It’s got to be better, it has to generate a good return on capital, it has to be accretive.” |
Questions or comments about Metal Center News. E-mail feedback@metalcenternews.com