Rough End to 2012
North American mills experienced a difficult close to the year, as economic uncertainty took a bite out of shipments and profits.
By Tim Triplett, Editor-in-Chief
Pension, Tax Charges Lead to Big Yearly Loss for AK Steel
AK Steel, West Chester, Ohio, reported a net loss of $230.4 million for the fourth quarter of 2012, a decline of 18.8 percent compared with fourth-quarter 2011. Net sales totaled $1.4 billion, down 5.9 percent from the same period the previous year.
For the full year, the steelmaker reported a net loss of $1.0 billion, compared to a net loss of $155.6 million in 2011. 2012 net sales totaled $5.93 billion, a decrease of 8 percent from 2011. The 2012 losses included a pre-tax pension corridor charge of $157.3 million and a non-cash income tax charge of $865.5 million. Excluding these charges, AK Steel had an adjusted net loss of $64.4 million for the full year.
AK Steel shipped 1.4 million tons in the fourth quarter, almost flat from the 2011 quarter. The average selling price in the fourth quarter was $1,011 per ton, approximately 6 percent lower than the same period of 2011. The lower average selling price was primarily due to lower spot market prices for carbon steel products and reduced raw material surcharges. Lower spot market prices for carbon steel products, reduced raw material surcharges and a less rich value-added product mix resulted in a decline in average selling price from the third quarter.
“Sluggish economic conditions impacted global demand and selling prices for steel products during the fourth quarter and full-year of 2012,” Chairman, President and CEO James L. Wainscott told investors and analysts during the company’s quarterly conference call. “That said, AK Steel remains well-positioned to take advantage of market opportunities with its high quality, valued-added steels as the economy continues to slowly recover. Taking everything into account, we expect a significantly better first quarter and full-year 2013.”
For the full year, AK’s shipments totaled 5.4 million tons, down 5 percent compared to 2011. Its average selling price for 2012 was $1,092 per ton, approximately 3 percent lower than the $1,131 per ton reported for 2011.
Earnings for 2012 were negatively affected by the decrease in shipments and spot market selling prices, along with higher coke costs. This negative impact was partially offset by decreases in costs for carbon scrap, iron ore and energy, officials said.
Aluminum Giant Ends Year Strong, Forecasts 7 Percent Growth in 2013
Alcoa, New York, reported net income of $191 million on total revenues of $23.7 billion in 2012, down from income of $611 million on revenues of $25 billion in 2011. Fourth-quarter 2012 net income from continuing operations of $242 million showed a significant improvement from the loss of $143 million in third-quarter 2012, and a loss of $191 million in fourth-quarter 2011. Revenue for the fourth quarter totaled $5.9 billion, up 1 percent compared with third-quarter 2012, but down 2 percent compared with fourth-quarter 2011.
Year-on-year, the realized aluminum price fell 12 percent, equating to roughly $1 billion in market impact, the company noted in its quarterly report to analysts and investors last month. Despite low aluminum prices, Alcoa generated full-year income and met all of its cash sustainability targets for the fourth consecutive year. The company claims it delivered $1.3 billion in productivity and overhead improvements, reduced days working capital by three days, and ended the year in a strong liquidity position with net debt at its lowest level since 2006 and $1.9 billion cash on hand.
“Alcoa hit record profitability in our mid and downstream businesses, and continued to drive efficiency in our upstream businesses in the fourth quarter, all while cutting debt and maintaining our cash position,” said Klaus Kleinfeld, Alcoa chairman and CEO. “We overcame volatile metal prices and global economic instability to deliver on our targets for the fourth year in a row. We enter 2013 in a strong position to maximize profitable growth.”
In 2013, Alcoa predicts global aluminum demand growth of 7 percent, up from 6 percent in 2012 and ahead of the 6.5 percent rate required to meet the company’s forecast of a doubling in global aluminum demand between 2010 and 2020. Aluminum demand grew 10 percent in 2011 on top of 13 percent growth in 2010. By market segment, Alcoa projects global growth this year of 9-10 percent in aerospace, 1-4 percent in automotive, 2-7 percent in commercial transportation, 2-3 percent in packaging, 4-5 percent in building and construction, and 3-5 percent in industrial gas turbines.
Alcoa has now completed its planned closure or curtailment of 531,000 metric tons, or 12 percent, of its highest-cost system smelting capacity, further improving its competitive position, executives said.
Allegheny Technologies Inc.
ATI Sales, Income Off in 2012
Pittsburgh-based Allegheny Technologies Inc. reported full-year 2012 net income of $158.4 million, down 26 percent from 2011. Net sales for the year totaled $5.03 billion, down 2.8 percent from the previous year.
For the fourth-quarter, ATI’s net sales totaled $1.1 billion and net income $10.5 million, both down from the previous year. The company reported net sales of $1.25 billion and net income of $31.7 million in the same period of 2011.
“The fourth quarter was negatively impacted by headwinds resulting from uncertain global economic conditions,” said Rich Harshman, chairman, president and CEO. “We saw continued conservative inventory management throughout the supply chains of most of our major end markets. These actions appear to have been driven by near-term concerns about the U.S. economy related to resolution of U.S. fiscal policy issues and challenging economic conditions in Europe, Japan, and to a lesser extent China. While these headwinds are creating challenging short-term conditions, we remain optimistic about the long-term growth opportunities in many of our global markets.”
The key global markets of aerospace and defense, oil and gas/chemical process, electrical energy and medical represented 67 percent of ATI sales for 2012. Aerospace and defense sales of $1.62 billion represented 32 percent, with 19 percent going to oil and gas, 12 percent to electrical energy and 4 percent to medical. Direct international sales totaled $1.8 billion and represented 36 percent of ATI’s 2012 sales.
“Our fourth-quarter 2012 results were impacted by continued low demand and historically low base prices for our standard stainless products,” said Harshman. “In addition, demand for some of our high-value products in both the High Performance Metals and Flat-Rolled Products segments was impacted by short-term actions by our customers to keep inventories lean, and by delays in projects.”
ATI consolidated operations in its Engineered Products segment, resulting in the closure of an iron casting facility in Alpena, Mich. In the Flat-Rolled Products segment, the company is consolidating certain service center operations into a single facility to improve efficiencies and reduce costs. The plan is on schedule to be completed by the end of the 2013 first quarter.
Among capital projects, the company’s Flat-Rolled Products segment Hot-Rolling and Processing Facility project at Brackenridge, Pa., is on schedule and on budget, officials said. Construction is expected to be completed by the end of 2013.
While the HRPF is expected to be ready for service by the end of the year, commissioning is scheduled to occur during the first half of 2014. This investment is designed to significantly enhance ATI’s flat-rolled products capabilities, reduce manufacturing cycle times and lower costs, officials said.
“For our high-value products, the HRPF extends our leading position by giving ATI the capability to offer our customers a wider and longer coil than we currently produce. Larger coils help customers better meet their product design needs and improves the productivity of their operations,” Harshman said.
For standard-grade products, the mill will provide wider and longer coils, while also producing a wide range of 400 series stainless alloys. “The HRPF, coupled with our direct roll, anneal and pickle facility, a continuous automated finishing line, creates one of the world's most efficient flow paths for standard stainless cold sheet products,” he said.
Harshman said the outlook is good for the long-term, once the near-term obstacles are cleared. “We believe market conditions remain favorable for strong secular growth over the next three to five years in many of our key global markets.”
Net Income Declines 35 Percent in 2012
Nucor Corp., Charlotte, N.C., reported earnings of $504.6 million in 2012, a decline of 35 percent from the previous year. Net earnings in the fourth quarter of $136.9 million were essentially flat compared to the same period of 2011, though up 24 percent from the third quarter.
Nucor's net sales decreased 8 percent to $4.45 billion in the fourth quarter, compared with the same period in 2011. The average sales price per ton declined 2 percent from the third quarter and 4 percent from the fourth quarter of 2011. Nucor shipped 5.5 million tons to outside customers during the quarter, a 5 percent decrease from the previous quarter and a 4 percent decline from the same period the previous year.
For the full year, Nucor's net sales decreased 3 percent to $19.43 billion. Average sales price per ton decreased 3 percent from 2011, but total tons shipped to outside customers increased slightly to 23.1 million tons.
Overall operating rates for the company’s steel mills were 74 percent for the full year, which was consistent with 2011 and up from the 70 percent of 2010. Steel mill utilization rates of 71 percent in the fourth quarter were flat from both the third quarter and the fourth quarter of 2011.
Nucor officials say construction is proceeding as expected on the company’s 2.5-million-ton DRI facility in Louisiana. The majority of the equipment arrived in 2012, and Nucor is on schedule for a startup in the middle of this year.
Officials say the construction market has shown some small improvement but remains at historically low levels. The best end markets continue to be manufactured goods, including automotive, energy and heavy equipment.
“After four years of recession and, at best, modest economic growth, we still cannot see signs of a full economic recovery. Steel mill and steel market conditions remain very challenging,” said Nucor CEO John Ferriola.
Like his predecessor, Nucor Executive Chairman Dan DiMicco, Ferriola railed against unfair imports and called for stronger enforcement of international trade rules. Steel imports totaled 26.7 million tons last year, a 17 percent increase from 2011 and a 38 percent increase from 2010, according to government data. In contrast, U.S. steel mills increased their production by less than 10 percent over the same two-year period. “Imports, which are being dumped in many instances, continue to present a serious challenge to the U.S. steel industry's recovery,” Ferriola said. “These import levels make no sense whatsoever when you consider both the sluggish domestic economic recovery and the fact that American steelmakers, overall, are among the lowest cost producers in the world.”
Despite Fourth-Quarter Gains, SDI’s Income Dips in 2012
Steel Dynamics Inc., Fort Wayne, Ind., reported net income of $61 million during its fourth quarter, doubling the figure from the same period in 2011. Net sales during the quarter were down 10.5 percent.
Despite the increase in the fourth quarter, full-year 2012 net income totaled $164 million, down 41 percent from 2011. Net sales in 2012 totaled $7.3 billion, off 8.8 percent from the previous year.
“Similar to the rest of 2012, the fourth quarter was challenging on a number of fronts,” said President and CEO Mark Millett in his report to analysts and investors. “We are pleased our fourth-quarter financial performance was stronger than originally anticipated. On a sequential quarterly basis our operating income increased 31 percent to $95 million, primarily driven by improvements in our metals recycling and sheet steel operations.”
The company’s steel operations showed improvement with an increase in operating income of 7 percent to $117 million, as gains in sheet steel volumes more than offset weaker long product shipments and lower overall steel metal spreads. Automotive and manufacturing provided improved sheet demand, while nonresidential construction remained weak.
The company’s steel mill capacity utilization improved to 80 percent in the fourth quarter, from 78 percent in the third quarter, while shipments increased 4 percent. Improved overall volume and product mix more than offset decreased steel margins, resulting in increased operating income of $8 million in the quarter.
The average selling price per ton shipped decreased $25 to $784 in the fourth quarter, while the average ferrous scrap cost per ton melted decreased $9 per ton. Operating income attributable to the company’s sheet operations increased 15 percent when compared to the sequential quarter, while earnings from long product operations decreased 3 percent.
“Despite the challenging construction market, we are also pleased that our fabrication business reported its third consecutive profitable quarter, as the changes the team implemented earlier in the year have continued to provide greater efficiencies and improved productivity,” Millett said.
In the company’s recycling division, sequential quarterly operating income increased 56 percent to $26 million, as meaningful improvements in both ferrous and nonferrous metal spreads more than offset decreased volumes. Increased copper margins provided the most notable improvement, as global copper prices increased based in part on improved demand from China.
“We believe there is potential for certain market sectors, such as automotive and manufacturing, to build momentum in 2013. Recent housing start data suggests potential improvements in residential construction, and there are signs of strengthening in the nonresidential construction sector, although levels remain historically low. Demand for high-quality steel products has not abated, and we believe our current capital projects will deliver products that exceed customers’ expectations,” Millett said.
Timken Profitable Despite Weak Quarter
The Timken Company, Canton, Ohio, generated net income of $495.5 million in 2012, an increase of 9.1 percent compared to 2011, despite a 4 percent dip in annual sales to $5.0 billion. The company finished the year on a low note as net sales in the fourth quarter of $1.1 billion were down 14.6 percent from the same period in 2011. Net income for the fourth quarter declined 31.0 percent to $75.3 million.
Officials said the quarterly sales decline reflects lower demand from the light vehicle, heavy truck, industrial machinery, and oil and gas sectors in the second half of the year. Lower surcharges and the impact of currency also contributed to the decrease in revenue. On the other hand, the company benefited from improved pricing, the favorable impact of its Philadelphia Gear and Drives acquisition, and strength in the company's rail, aerospace and defense end markets.
"Over the course of the year, we responded quickly and effectively to slowing demand across our end markets," said James W. Griffith, Timken president and CEO. "Our strategy of continuing to evolve in key markets and further diversifying our product portfolio with new products and additional repair services enabled us to achieve double-digit operating margins in all four segments, even in the face of lower volumes.”
Sales in the company’s Steel business unit, including inter-segment sales, hit $1.7 billion in 2012, down 12 percent from $2 billion the previous year. The results reflect reduced shipments to the industrial and oil and gas market sectors and lower raw-material surcharges of approximately $165 million, partially offset by favorable pricing. For the quarter, Steel segment sales totaled $316.4 million, down 32 percent from the same period last year.
Among developments in 2012, Timken broke ground on a $225 million expansion at its Faircrest Steel Plant in Canton, which will provide large bar production capabilities otherwise unavailable in the U.S., the company claims. Timken also invested in a new intermediate tube finishing line and new in-line forge press to improve productivity and increase capacity in its steel operations.
"Our outlook for the year reflects our expectation that we will continue to see inventory reduction by our customers in the first half of the year, and anticipate an improving economy in the second half with customer demand matching consumption," Griffith said.
Challenging Fourth Quarter Leads to Full-Year Loss
United States Steel Corp., Pittsburgh, reported a fourth-quarter net loss of $50 million. That was a major shift from the third-quarter profit of $44 million, but a significant improvement on the $211 million loss suffered during the same period in 2011.
For full-year 2012, U.S. Steel reported a net loss of $124 million, which included a loss of $353 million due to the sale of U.S. Steel Serbia. For full-year 2011, U.S. Steel reported a net loss of $53 million.
"For the third consecutive quarter, all three of our reportable segments had positive operating results despite the uncertain global economic environment. Lower drilling and project line pipe activity, as well as continued high import levels, significantly reduced our Tubular segment's results. For our Flat-rolled segment, our profitability was negatively affected by the uncertain domestic fiscal situation, as well as continued high levels of flat-rolled steel imports,” said U.S. Steel Chairman and CEO John P. Surma.
U.S. Steel’s net sales in the fourth quarter totaled $4.5 billion, down 6.9 percent from the same quarter in 2011. For the full year, U.S. Steel’s net sales of $19.33 billion were down 2.8 percent from the previous year.
Results for the company’s Flat-rolled operation in the fourth quarter remained positive, but decreased from the third quarter due to lower average realized prices and shipments, partially offset by lower operating costs. Average realized prices and shipments were lower compared to the third quarter, as cautious purchasing patterns continued in light of the uncertain global economic outlook, the domestic fiscal situation and compressed mill lead times, officials said. Operating costs decreased due to lower raw material, repair and maintenance costs, partially offset by higher natural gas costs.
Looking ahead, U.S. Steel forecasts Flat-rolled segment results to be near breakeven in the first quarter. “Steel buyers in North America continued to exhibit caution early in the year, but recent increases in our daily order entry rates suggest increased spot market demand as the quarter progresses,” Surma said.
“We expect higher shipments in the first quarter than the fourth quarter, with increases across many of our industry segments. Average spot prices are expected to be higher than the fourth quarter as recently announced price increases take effect.”
Fourth-quarter results for the company’s European segment remained positive, but lower than the third quarter. Average realized prices decreased, reflecting lower spot market and quarterly contract pricing, while shipments remained comparable to the third quarter. Fourth-quarter results for the company’s Tubular segment were well below third quarter. Average realized prices and shipments decreased as end users reduced drilling activity and project line pipe purchases were delayed. Inventory management and continued high import levels also adversely affected order rates near year-end. Operating costs increased due to lower production levels, officials said.
"We continue to be challenged by uncertain global economic and steel market conditions. We expect a slight improvement in the European and Tubular segment operating results,” Surma said.
|Processor Reports Sales, Earnings Gains
Worthington Industries, Columbus, Ohio, reported net earnings of $31.8 million for the company’s second quarter ended Nov. 30, an improvement of 163.3 percent versus the same quarter a year earlier. Net sales for the quarter totaled $622.6 million, an improvement of 10.0 percent.
"We had strong performances from most of our businesses in the second quarter, with volume increases in Pressure Cylinders, and a steady performance from Steel Processing, offset by softness in Engineered Cabs," said John McConnell, chairman and CEO. "Our year-over-year performance improved despite declining steel prices, thanks to contributions from recent acquisitions. We are very pleased with the results of our latest acquisition, Westerman, whose products include tanks for use in on-site production in shale drilling activity."
An increase in volume was partially offset by lower average selling prices, primarily in Steel Processing, which were affected by the declining market price of steel. Most of the volume increase resulted from the acquisition of Angus Industries, reported under the Engineered Cabs segment, and two acquisitions in Pressure Cylinders.
Worthington Steel Processing's net sales of $339.3 million were down 9 percent from the prior-year quarter, the result of lower average selling prices and a decrease in volumes. The lower volumes were driven by the wind down of unprofitable customer accounts from the MISA Metals acquisition in fiscal 2012. The mix of direct versus toll tons processed was 55 percent to 45 percent, compared with a 51 percent to 49 percent in the comparable quarter of the prior year. Operating income increased by $5.9 million due primarily to lower inventory holding losses in the current quarter.
"We expect to see the normal seasonality in our traditional markets in the [next] quarter," McConnell said. "We do think that the delay by lawmakers in addressing the country's fiscal crisis has resulted in a pullback in some areas of the economy. While this may impact some of our cyclical businesses, we continue to anticipate good performance in our higher growth cylinder operations serving retail, alternative fuels and energy markets."