Mills Exceed Expectations
Despite Softness in Flat-Roll

AK Steel
New Labor Agreement,
Record Revenues, Income
AK Steel Corp., Middletown, Ohio, exceeded even its own expectations in the first quarter of 2007, posting record revenues and a net income that was 10 times greater than first-quarter 2006 results.

The steelmaker’s net income for the quarter was $62.7 million on revenues of $1.7 billion, compared with net income of $6.2 million on revenues of $1.4 billion in last year’s first quarter.

“Our record first-quarter revenues were driven by a record average selling price of $1,078 per ton, which was a 3.6 percent increase over the fourth quarter [and a 14.7 percent increase over selling prices in the first quarter of 2006],” said Albert E. Ferrara Jr., AK’s vice president of finance and chief financial officer.

“This is exciting news for AK Steel and our shareholders, but what’s even more exciting is that we believe the best is yet to come, as we anticipate improved results in the second quarter,” said James L. Wainscott, AK’s chairman, president and chief executive officer. The steelmaker expects its shipments to reach 1.650 million tons in the second quarter, according to Ferrara, up 3 percent from 1.596 million tons in the first quarter of this year, which in turn was up from 1.526 million tons from the first quarter of 2006. In addition, AK Steel expects its selling prices to increase 2 to 3 percent in the second quarter.

“Our positive outlook is bolstered in part by the recent attainment of competitive labor agreements at two more of our locations,” Wainscott said, including one that ended the yearlong lockout at its Middletown Works. “With those deals in place, we have now negotiated a total of 11 new-era competitive labor agreements in the past three years.”

Wainscott said the Middletown agreement “set a new standard in terms of flexibility and cost reduction for steel industry labor agreements.” Following the transition period, AK plans to operate the Middletown facility with about 2,000 workers—1,000 fewer employees than it was obligated to have there under the old 1999 labor agreement—which could save the company as much as $100 million a year.

Under the labor pact, active Middletown workers have agreed to share in their health care costs now and once they retire. For the time being, current Middletown retirees will be exempt from doing so, unlike all the other active employees and current retirees at AK Steel. “Controlling health care costs is vital to a company like AK Steel. That’s why it is so important to establish or increase health care cost sharing during this round of labor negotiations, not just for active employees, but for retirees as well,” said Wainscott.

Looking at the markets that AK Steel serves, Wainscott said that automotive, its largest end-use sector, remains solid with light vehicle sales expected to be essentially flat with 2006 levels and dealer inventories at 65 days, down about 8.5 percent from a year ago. Meanwhile, demand in the appliance, construction and manufacturing markets, though closely tied to housing starts, is improving. “We believe the worst of the housing slump has passed and that this sector should continue to show an improving trend through the remainder of 2007,” he said.

The service center/distribution market is also rebounding, with inventories of both carbon steel and stainless steel receding. Wainscott observed that as of March 31 the carbon steel inventory level had declined to only three months of supply on hand vs. 4.9 months just a quarter ago. Inventories of stainless steel were also lower. By the end of the first quarter, the stainless inventory level had declined to 3.7 months of supply on hand compared with 6.2 months as of Dec. 31, 2006.

“With the pickup in demand for our carbon flat-rolled products coupled with declining inventory levels and fewer imports, AK Steel announced a total of three base price increases on carbon spot market products during the first quarter,” Wainscott said, partly due to escalating costs for scrap and other inputs. “These three price increases totaled $100 per ton for hot-roll and $90 per ton for cold-rolled coated products.”

The market for specialty steel is also mostly positive. While commodity 300 series stainless steel has been impacted by lower demand from the housing and capital goods markets and record high nickel prices, 400-series stainless is experiencing record shipments. With input costs of stainless steel “out of sight,” including nickel, which reached an all-time record high of more than $52,000 per metric ton, selling prices of stainless have also increased, said Wainscott.

The market for electrical steel is also quite robust. “To serve our customers’ growing needs in this sector we are expanding our production capacity for electrical steels as quickly as possible. We are in the midst of our third expansion project for electrical steels and we are studying how we might further meet our customers’ growing requirements in the future,” Wainscott said.

“2007 is the year that we put the pedal to the metal as we accelerate our progress, increase our earnings and cash flow and improve our balance sheet,” he concluded. “I believe we have made dramatic and breakthrough improvements in the past three years and, having laid the foundations, we are now building the framework for a much brighter future for the company.”

Alcoa
Aluminum Prices Propel
Producer to Record Quarter
Helped by strong aluminum prices and generally robust end-use demand, Alcoa Inc., Pittsburgh, Pa., reported strong financial results for the first quarter—its best first quarter ever.

The company has built upon the strong foundation laid last year, said Alain Belda, its chairman and chief executive officer. “We had record financial performance in 2006. We increased dividends, we started a share repurchase program, and we had active portfolio management and growth projects impacting our bottom line. We have improved downstream businesses providing unique and proprietary products to growing end markets, and we have great upstream position in alumina and aluminum. With that as a backdrop, the momentum continues with strong market fundamentals and another strong quarter supported by exceptional returns in capital and impressive cash generation.”

Alcoa posted a net income of $662 million in the first quarter of 2007, up 8.9 percent from $608 million a year earlier and 84.4 percent higher than the fourth quarter of 2006. Sales for the quarter totaled $7.9 billion, up 11.2 percent from the first quarter of 2006 and up 0.9 percent from the previous quarter.

Charles D. McLane Jr., vice president and chief financial officer, said that Alcoa’s upstream businesses were able to take advantage of increased metal prices in the first quarter while managing through the costs associated with restarting its Intalco smelter, bringing on its new Iceland smelter, and dealing with higher carbon costs and higher energy costs at its Rockdale smelter.

“Our downstream businesses continue to make significant improvements compared with last year through increased productivity, share gain, improved mix and introduction of new products, with all of this accomplished in spite of the Class 8 truck decline [with builds down 25 percent in the first quarter vs. a year earlier] and the production cuts on specific North American automotive platforms,” he said.

Other end-use markets, particularly aerospace, industrial turbines and nonresidential construction, are quite strong, according to Belda, with markets in Europe stronger than in the United States and the Chinese market continuing at a “torrid” pace.

Alcoa has been actively working to manage its business portfolio, Belda said. For example, last year it sold its Alcoa Home Exteriors business, which he describes as a good business “but not core to our overall strategy.” Alcoa also announced that it was forming a soft alloy extrusions joint venture with Orkla ASA’s SAPA Group, which is to be finalized in the second quarter of this year and then eventually offered to the public via an IPO.

One possible future target of Alcoa’s portfolio review could be its packaging business, even though it is clearly seeing improved profitability, with earnings increasing 138 percent in the first quarter vs. a year earlier. “We will make a decision at the end of the year as to where it fits into our portfolio,” Belda said.

2007 will be Alcoa’s peak capital spending year with many of its growth projects reaching completion. The 657,000 metric ton upgrade at its Pinjarra refinery in Australia is currently in place. In addition, the company has expanded its aerospace sheet and plate production by 50 percent since 2004, and its Chinese and Russian mills continue to show improvement, Belda said.

He added that he is very excited about Alcoa’s Iceland smelter—its first greenfield smelter in 25 years—which is now complete. “This smelter is really quite impressive with 15 acres under roof and more than 1,200 yards long. It will be the most environmentally friendly smelter in the world, including all of the improvements we have developed in the process as well as all of our Alcoa Business Systems learning.”

Both the Sao Luis refinery expansion project and the Juruti bauxite mine project in Brazil are on track to be completed by the end of 2008. 

Alcoa continues to improve the performance of its downstream businesses, Belda said. “Obviously, losses in our newly acquired Russian and Chinese mills are a drag on margins at this time, but that will soon be behind us. We must continue to profitably grow our businesses in areas that are projected to have double-digit growth over the next decade. We are investing in these geographic areas as well as in the United States and Europe to produce high value-added products such as aerospace products, litho and brazing sheet.”

Allegheny Technologies
Key Markets Stay Strong
Allegheny Technologies Inc. reported net income for first-quarter 2007 of $197.8 million on sales of $1.04 billion, up from $106.5 million in first-quarter 2006.

“We are off to a good start in 2007 with another quarter of double-digit sales and earnings growth,” said L. Patrick Hassey, chairman, president and CEO. “Our key growth markets, namely aerospace and defense, chemical process industry, oil and gas, and electrical energy, remain strong. Our strategic capital projects are beginning initial operations, providing further melting and finishing capacity for continued profitable growth in 2007 and beyond.”

First-quarter 2007 sales increased 32 percent compared to first-quarter 2006 and net income increased 86 percent. ATI achieved total segment operating profit of nearly 25 percent of sales.

In the High Performance Metals segment, most end markets were strong in the first quarter, Hassey said. First-quarter 2007 shipments of titanium mill products to airframe customers far exceeded ATI’s original expectations, while shipments of standard grade titanium and nickel-based alloy bar products were slightly lower in the first quarter due to inventory corrections by distributors, especially for medical and oil and gas applications. “We are also seeing some customers for our nickel-based alloys and superalloys being cautious with their inventory levels due to the unusually high cost of nickel,” Hassey added.

ATI continued to transform its Flat-Rolled Products segment to a high-value specialty metals business, Hassey said. First quarter 2007 segment operating profit was a record 20.4 percent of sales due to strong shipments of specialty and titanium sheet, specialty plate and grain-oriented silicon electrical steel products. “This segment achieved a record quarterly operating profit of $160 million even though shipments of commodity stainless sheet were much lower as a result of inventory management actions at many of our U.S. service center customers,” Hassey said. “We remain sensitive to our customers’ concern with the dramatic increase in the cost of nickel. As a result, we continue to assist customers in switching to lower nickel-bearing alloys, a process that has changed our product mix and continues to gain momentum.”

Looking ahead, Hassey expects ATI’s overall performance in the second quarter to be similar to that achieved in the first quarter 2007, with improved results in the High Performance Metals segment offsetting somewhat lower results in Flat-Rolled Products.

Carpenter Technology
Sales, Income Reach Record
Despite High Nickel Prices
Carpenter Technology Corp., Wyomissing, Pa., reported record quarterly sales and net income, which reflected strong growth in several end-use markets and a continued focus on cost improvements through lean manufacturing.

Net sales for the company’s third fiscal quarter ended March 31 totaled $538.4 million, compared with $426.0 million for the same quarter a year ago. Net income in the third quarter was $66.6 million, compared with net income of $60.8 million a year ago.

For the nine months ended March 31, net sales totaled $1.4 billion, compared with $1.1 billion for the same period a year ago. Net income for the first nine months of the current fiscal year totaled $165.9 million, compared to net income of $143.8 million a year ago.

“We are very pleased with our ability to achieve record quarterly results despite all-time high nickel costs and supply chain adjustments that took place within certain key end-use markets,” said Anne Stevens, chairman, president and chief executive officer.

Nickel prices on the London Metal Exchange increased from an average of approximately $6.70 a pound in the third fiscal quarter a year ago to $18.80 for this year’s third quarter. As a result, the company’s recent third quarter surcharge revenue increased 209 percent from a year ago to $154 million. However, demand for nickel-based alloys slowed during the quarter, as many customers became more cautious about inventory balances.

As part of its continuous effort to further improve quality and reliability, Carpenter will invest approximately $16 million to upgrade its Specialty Alloys Operations’ hot-rolling facility. This investment is in addition to the $115 million premium melt capacity expansion announced in January. The upgrade of the Reading, Pa., hot-rolling facility will provide new electrical control systems supporting management’s lean initiatives and better yields. The project is expected to begin in July and be completed by August 2008.

“We expect that our fourth-quarter operating performance will remain strong based on current market conditions,” Stevens added. “While end-use markets are healthy overall, soaring nickel prices are continuing to impact the ordering and commitment patterns of many of our customers.”

IPSCO
‘No Comment’ on Sale Rumors,
But Business Remains Good
Anticipating the question on everyone’s mind, IPSCO President and CEO David Sutherland opened the company’s first-quarter conference call with a big “no comment.” While IPSCO acknowledged in a press release last month that it has been approached by potential acquirers, company officials offered no further insights about the potential for another steel-industry merger.

IPSCO’s latest financial report suggests the maker of steel plate and energy tubular goods would be an attractive takeover target. Sales for the quarter—including those of the recently acquired NS Group—hit a record $1.03 billion, an increase of 14.3 percent or $128.8 million over the same quarter last year and 5.0 percent or $49.4 million over the prior quarter. Total shipments for the quarter were 1,073,000 tons, a new quarterly record for IPSCO, and an increase of 68,000 tons compared to last year and 53,000 tons higher than the prior quarter.

“Integration of the NS Group is going very well. It’s on track with the synergies anticipated, and we are pleased with response of employees and customers,” Sutherland noted.

Earnings for the quarter showed declines, however. IPSCO’s net income of $109.4 million for the first quarter of 2007 was down compared to both $150.7 million for the first quarter of 2006 and $139.0 million in the fourth quarter of 2006. Gross income for the quarter was $228.2 million, down from $279.5 million in the first quarter of last year. The decline in gross income from first quarter last year is due to the amortization of the remaining $24 million fair value increment allocated to NS Group inventory, higher scrap costs, expenses related to the Mobile maintenance outage, and higher tubular product costs, company officials said.

IPSCO’s steel mill product shipments of 649,000 tons were relatively flat, decreasing 1.4 percent from the first quarter of last year and 2.2 percent from the prior quarter. Tubular shipments of 424,000 tons increased 22.3 percent over the prior year and 18.8 percent over the prior quarter, primarily due to the addition of NS Group tubular volumes and greater large-diameter shipments.

“I am pleased with our first quarter. End-user demand was strong for plate, and while demand for small-diameter energy tubular products was lower than last quarter, we expect shipments to improve as inventories at service centers and reach desired levels,” said Sutherland.

Operating highlights of the first quarter include: significant progress in inventory reduction, successful completion of the Mobile maintenance outage where the upgrades are showing immediate benefits, and the award of 530,000 tons of large-diameter pipe orders, Sutherland added.

Service centers returned to a buying mode late in the first quarter, he noted. “IPSCO’s steel mill capacity is fully committed through the second quarter. The pricing environment has improved on plate and wide coil, though higher scrap costs will impact margins.”

IPSCO expects high oil and gas prices to continue to drive high U.S. rig counts. OCTG sales volumes in Canada will be seasonally weaker than in the first quarter with improvement in the last half of the year. In addition, IPSCO’s spiral pipe facilities are now booked at full capacity through May 2009.

Nucor Steel
Quarter’s Gains Tempered
by Softness in Flat-Roll
Despite a softening of demand for flat-rolled steel and higher scrap costs, Nucor Corp., Charlotte, N.C., achieved fairly strong financial results in first-quarter 2007, largely due to its diversified product mix.

The minimill steelmaker reported net earnings of $381.0 million for the quarter—up a scant 0.3 percent from a year earlier, but down 5.9 percent from the previous quarter. Net sales totaled $3.8 billion, up 6.3 percent vs. first-quarter 2006, despite a 10 percent decline in sheet shipments, a $22 a ton increase in metallics costs and a $15.5 million increase in LIFO inventory charges year over year.

“Our first-quarter earnings benefited from extremely strong earnings from our bar and beam mills, as well as solid profitability from our plate, sheet and steel products divisions,” said Terry Lisenby, chief financial officer, treasurer and executive vice president. He called Nucor North America’s most diversified steel producer with 36 percent of its sales coming from sheet, 32 percent from bars, 14 percent from beams, 11 percent from plate and 7 percent from downstream steel products.

Dan DiMicco, chairman, president and chief executive officer, would not comment on whether Nucor is planning to further diversify into tubular products, possibly through the acquisition of IPSCO Inc., Lisle, Ill., which is reportedly on the block.

“We are focused on our strategy to expand both upstream and downstream and within our steelmaking group. That hasn’t changed. You can see our growth with Verco Manufacturing Co. [which Nucor acquired in November] in decking and Harris Steel Group [which Nucor acquired in March] in rebar fabrication, cold-finished bars and other fabricated products. We have been very successful in growing in those directions and we are looking for other opportunities. We certainly won’t rule out [tubular products].”

Hamilton Lott Jr., an executive vice president of Nucor, said that the acquisition of Harris Steel—Nucor’s largest acquisition to date—is a major step in advancing the steelmaker’s vertical integration strategy. It makes Nucor not only North America’s largest rebar producer but its third largest rebar fabricator with approximately 770,000 tons of rebar fabrication capacity in the United States and Canada. Harris Steel’s other business units provide Nucor with attractive vertical integration growth opportunities, Lott added, with Laurel Steel expanding Nucor’s position in cold-finished bars and other units offering downstream growth opportunities in steel gratings, steel distribution and steel trading.

Also during the quarter, Nucor successfully began operation of its Nu-Iron Unlimited direct reduced iron (DRI) facility in Trinidad. “At an annual capacity of two million tons, Nu-Iron is the largest component of our raw material strategy to control six to seven million tons a year of high-quality metallics,” said DiMicco. He added that the startup went so well that Nucor’s sheet mills have found they can use significantly more DRI in their mix than was originally expected. As a result, Nucor is currently exploring ways to increase Nu-Iron’s capacity by 15 to 20 percent.

Meanwhile, Nucor decided to sell off its stake in its Ferro Gusa Carajas SA Brazilian “green pig iron” joint venture to its partner, Companhia Vale do Rio Doce (CVRD), and has instead entered into a 100 percent off-take contract for production from this facility. 

Lisenby said Nucor’s second-quarter outlook is positive. “Overall end-use demand is very healthy for bars, beams and plate. While we see improved conditions in our flat-rolled business, this improvement is coming off very soft sheet market conditions in the fourth quarter of 2006 and the first quarter of 2007. We expect this improvement in the sheet market to continue through the second and third quarters.”

Lisenby was encouraged by the recent report from the Metals Service Center Institute citing a significant drop in March service center inventories, particularly in flat-rolled products, which should result in a more normal buying pattern from Nucor’s distributors.

The cost of ferrous scrap was down sharply in April and should be down again in May, he added. “This will have a positive impact on margins by mid-May through the end of the quarter. However, we do expect to see margin compression in some products in the early part of the second quarter as the first-quarter scrap run-up works its way through our inventories.”

Steel Dynamics Inc.
Long Products Outperform
Results for Flat-Roll
Steel Dynamics Inc., Fort Wayne, Ind., reported first-quarter earnings of $102 million, an increase of 34 percent vs. first-quarter 2006. “The first quarter was another excellent quarter for Steel Dynamics,” said President and CEO Keith Busse. “Operating results were strong at each of our mills, with sustained strength in the long-products markets and continued recovery in the flat-rolled market.”

SDI revenues increased 30 percent to $866 million from $666 million in the first quarter of 2006, largely due to the acquired Roanoke facilities, which were not included in first-quarter 2006 results. First-quarter consolidated shipments of 1.3 million tons were 19 percent higher than in the first quarter of 2006 and 8 percent higher than in the fourth quarter of 2006. Three of the company’s long-products divisions each achieved record shipments in the first quarter due to strong demand within the non-residential construction and industrial markets.

“We certainly enjoyed good volume and robust results in the shapes side of our business and are in the process of recovering from substantial market drift in regard to flat-roll products,” added Busse, who noted that first-quarter shipments increased by 8 percent over the fourth quarter.

SDI’s operating margin was 20 percent in the first quarter, and cash flow from operations was $148 million. The cost of ferrous resources increased moderately during the quarter. However, higher scrap costs were somewhat offset by scrap surcharges, increased shipping volumes and product mix, company officials told investors and analysts during their conference call last month.

First-quarter operating profit per ton shipped was $136, down from $150 in the previous quarter. Market softness for flat-rolled steel caused the first quarter’s average consolidated selling price to decrease to $689 per ton shipped, compared to $720 for the fourth quarter. The decline in average selling price was principally offset by cost declines due to mix, cost improvement and cost compression. Average scrap costs were up $15 per net ton charged and were a factor in the operating margin decline.

In January, Flat Roll Division shipments began their recovery from the fourth quarter’s slower pace of 581,000 tons, reaching 612,000 tons for the first quarter. While it was an improvement, “it obviously was pretty far behind the 663,000 tons that they enjoyed in the first-quarter of 2006,” Busse noted.

All of SDI’s long products divisions (52 percent of shipments in the first quarter) are experiencing strong shipping rates, increased selling values and solid order books, Busse said. In contrast, “we are seeing a spotty recovery from a flat-products perspective,” he added. “One week we have a good book, the next week we have a weak book. But on the whole, we think order entry, market conditions and pricing are improving in flat-roll, albeit slowly.”

SDI completed the merger with Roanoke Electric Steel Corp. about a year ago and is pleased with the integration of the companies’ operations. “Since the date of the merger, both of the steelmaking operations we acquired, the Roanoke Bar Division and Steel of West Virginia Inc., have produced at record levels, achieving shipments totaling 941,000 tons over the last four quarters. The Roanoke acquisition has made a positive contribution to our revenue and operating income while providing SDI with a more diversified product mix,” Busse said.

SDI officials expressed a positive outlook for the second quarter, predicting that steel prices are likely to increase even though the cost of scrap is trending down. Busse doesn’t believe that the economy will falter, but rather expects improvements in sectors such as automotive and housing, which will add to steel demand. “I wouldn’t be surprised if by June we see hot-roll at over $600 a ton [from April’s $565-$575 level],” he added.

Second-quarter results at SDI will be affected by short planned maintenance outages at Columbia City, Butler, Roanoke and Steel of West Virginia. “We will have four mills offline for a week or so in the early part of the quarter, which will have some small impact on Q2,” Busse said.

“As we look forward, we still think 2007 will be a great year for the company. I suspect that our strongest quarter will be Q3, with decent results in Q4. 2007 could be a stronger year for Steel Dynamics than 2006,” Busse said.

During the conference call, SDI also highlighted a series of management changes “designed to enhance the company’s flexibility in pursuit of current and future growth opportunities.” (See details in Metal Industry News.)

U.S. Steel
Strong Results in Europe
Bolster Mixed Sales in U.S.
“Considering market conditions, we had a good quarter with solid results from flat-rolled and tubular, and a particularly strong performance by our European segment,” said John P. Surma, chairman and chief executive officer of U.S. Steel Corp., Pittsburgh, Pa..

U.S. Steel reported a net income of $273 million for the first quarter of 2007, up 8.3 percent from $252 million a year earlier but down 8.1 percent from $297 million in the fourth quarter. Net sales were fairly steady at $3.76 billion, up 0.8 percent from the first quarter of 2006 but down 0.5 percent from the previous quarter.

Much of the strength clearly came from U.S. Steel’s European segment, which had an operating income of $206 million for the quarter, up 64.8 percent from the first quarter of 2006. “This segment continues to benefit from a strong Central European economy and growing steel demand reflecting the continued expansion of manufacturing operations, including automotive assembly in the Central European corridor,” Surma said.

U.S. Steel will benefit directly from the strength of that segment with its new 350,000 metric ton per year automotive galvanizing line, currently ramping up in Kosice, Slovakia. The line, which produced its first coil in early February and will go through a testing and commissioning phase for the balance of the year, should be in the position to supply automotive contract volume in 2008.

Surma said it is possible U.S. Steel will invest further in both its Serbia and Slovakia operations, whether for infrastructure and environmental improvements or for market-based expansions. “We are putting some pressure on our cold-rolled capacity with the new galvanizing line coming up and we might need to have additional cold-roll or pickling capacity there,” he said.

In the second quarter, U.S. Steel Europe will likely have lower operating results as increased prices are offset by higher raw material and outage costs, said Gretchen R. Haggerty, U.S. Steel executive vice president and chief financial officer, who added that prices and shipment levels there are expected to be in line with the first quarter.

While the flat-rolled segment’s first-quarter operating income of $75 million was down 40.9 percent from $127 million a year earlier, it showed a considerable improvement over the $31 million earned in fourth-quarter 2006. Surma noted that while the average North American flat-roll price declined approximately $50 to $515 a ton in the first quarter, U.S. Steel’s average selling price actually increased slightly, reflecting the benefit of higher contract prices that went into effect in January. “Our flat-rolled results also reflect higher shipments and the cost benefit of operating at 78 percent of capability compared with 67 percent in the fourth quarter,” he added.

Prospects continue to look up with domestic flat-roll conditions continuing to improve now that service center inventories are moving back to historical levels. Flat-roll inventories declined by 1.4 million tons or 14 percent during the first quarter, in part due to lower flat-roll imports, Surma said. “Our order rate has improved and we now have only one domestic blast furnace (one of the small furnaces at Gary, Ind.) idled for market conditions.” That furnace could be brought on line relatively quickly when needed, he added, possibly later this quarter or in the third quarter.

The company’s first-quarter tubular segment operating income of $102 million showed a decline of 42.4 percent compared to the year earlier quarter, and a 29.2 percent decline compared to the previous quarter, on a 9 percent decline in shipments. “Despite U.S. rig counts at near record levels and good end-user demand, high inventory levels have dampened demand from our oil country distributors,” Surma said. “We reduced our oil country tubular goods production and shipments to ensure that our operations remain in balance with our orders. This resulted in a different product mix that accounts for much of the 6 percent apparent price decline compared with the fourth quarter.”

In the second quarter, prices and shipments for tubular products are expected to be lower than in the first quarter as imports and customer inventories remain high. (This does not include U.S. Steel’s planned acquisition of Dallas-based Lone Star Steel Co.)

On the positive side, Surma said he understands that distribution inventories are now moving in the right direction. “Underlying factors like the rig rates and the overall energy price structure have been very positive, so it is just a matter of working through these inventories.” n