Strong Finish Buoys Hopes for Better '14
North American mills closed the forgettable 2013 with solid financial performances, report executives from major publicly held mills in their fourth-quarter reports to analysts and investors. Will the momentum carry into 2014?
Compiled by the Staff of Metal Center News
AK Gets Back in Black During Fourth Quarter
AK Steel returned to profitability in the company’s fourth quarter, reporting a net income of $35.2 million. In the same quarter of 2012, the West Chester, Ohio-based steelmaker reported a net loss of $230.4 million.
AK Steel’s sales in the fourth quarter totaled $1.5 billion, a modest improvement from the same quarter in 2012.
Sales for the full year totaled $5.57 billion, a decrease of 6 percent compared to 2012. The company’s full-year net loss of $46.8 million was 95.4 percent better than 2012.
“I am delighted with our fourth-quarter 2013 results and our strong finish to the year,” said Chairman, President and CEO James L. Wainscott during the company’s quarterly conference call with investors and analysts.
AK reported shipments of 1.4 million tons in the fourth quarter, a slight improvement from the same period in 2012. The modest increase in shipments was primarily due to stronger demand in automotive sales, partially offset by lower carbon shipments to the spot market. The increase in shipments from the third quarter of 2013 was primarily a result of higher carbon sales to the spot market and reflects the benefits of the company’s recovery from the previously disclosed unplanned Middletown Works blast furnace outage in June.
AK’s shipments for 2013 totaled 5.3 million tons, down 3 percent from 2012 as a result of lower shipments to the carbon spot market. The company’s average selling price for full-year 2013 was $1,056 per ton, approximately 3 percent lower than the $1,092 per ton reported for 2012. The lower price was attributed to lower spot market selling prices in the first half of 2013, lower selling prices for electrical steel and reduced raw material surcharges, partially offset by a more favorable mix of value-added products.
Impairment Charge Spoils Otherwise Solid Quarter
Alcoa, New York, reported a net loss of $2.3 billion for both the fourth quarter and the full year primarily due to a one-time $1.7 billion impairment charge in its Primary Metals division. This compares to net income of $24 million in the previous quarter and income of $242 million in the same quarter the previous year. Without the special charge, the aluminum giant would have seen $40 million in net income in the fourth quarter. All of the company’s business segments reported productivity gains.
"We delivered strong operating performance in the fourth quarter led by record downstream profitability as our strategy to build out the value-add businesses and lower the cost base in the commodity segment gained traction,” Klaus Kleinfeld, Alcoa chairman and CEO, told investors and analysts. “In addition, we put a number of legacy matters behind us, clearing a path for Alcoa’s continued transformation in 2014.”
Among its most noteworthy moves was Alcoa’s decision to take 16 percent of its global smelting capacity offline. Alcoa claims $1.1 billion in year-over-year productivity gains as a result.
“We started growing our value-add businesses and lowering the cost base of our commodity businesses at the height of the economic crisis. Today, this transformation is paying off, with the value-add businesses driving 57 percent of our revenues and 80 percent of our segment profits,” Kleinfeld said.
Alcoa’s revenue in the fourth quarter totaled $5.6 billion, a decline from both the same quarter in 2012 and the previous quarter. Sales for full-year 2013 totaled $23.0 billion, down 3.0 percent as aluminum prices declined 4 percent year over year.
In the company’s global rolled products segments, income in the fourth quarter totaled $21 million, down 77 percent from the previous quarter and 70.4 percent from the same quarter in 2012. Sequentially, seasonal volume and pricing headwinds in packaging, aerospace and industrial were somewhat offset by record automotive shipments.
In 2014, Alcoa projects global growth of 7-8 percent in aerospace; 1-4 percent in automotive; 2-3 percent in packaging; and 4-6 percent in building and construction. Alcoa projects flat to modest growth in commercial transportation and an 8-12 percent decline in the industrial gas turbine market.
Overall, Alcoa forecasts global aluminum demand growth of 7 percent in 2014, following similar growth in 2013.
Allegheny Technologies Bounces Back in 4Q
Allegheny Technologies Inc., Pittsburgh, rebounded from a loss in the third quarter with fourth-quarter net income of $173.4 million. The specialty steelmaker had posted a $28.1 million loss in the previous quarter, and $10.5 million in earnings during the same period last year.
The increased profits were reported despite lower sales compared to both the previous quarter and the fourth quarter in 2012. The company reported net sales of $915.3 million, 5.8 percent lower than the third quarter and 9.5 percent behind 2012.
“Fourth-quarter 2013 operating profit results were negatively impacted by low shipments of many high-value and standard products, low base-selling prices for many products, and the impact of higher raw material input costs,” said Rich Harshman, chairman, president and CEO. “While these headwinds created challenging business conditions in the fourth quarter and throughout 2013, we are continuing to see long-term growth opportunities in many of our global markets.”
Full-year sales of $4.0 billion were down 13.4 percent from 2012. Sales to the key global markets of aerospace and defense, oil and gas/chemical process industry, electrical energy and medical represented 68 percent of ATI sales for the full year. High-value product sales represented approximately 78 percent of ATI’s 2013 sales.
During the fourth quarter, ATI closed two previously idled facilities. It shuttered its titanium sponge facility in Albany, Ore., and its stainless finishing facility in New Castle, Ind. It also began its closure of the Wallingford, Conn., stainless finishing facility, a restructuring it expects to complete by mid 2014.
“While market conditions were difficult in 2013, we continued with our restructuring, cost reduction and lean manufacturing efforts to better align our cost structure, inventory, and production levels to the demands of our customers and end markets,” Harshman said. “Our recent strategic investments in manufacturing capabilities and process technologies enable the closure of older, higher cost operations, and the streamlining of our manufacturing processes by reducing our manufacturing footprint.
Harshman said improvements at its Rowley, Utah, sponge facility allowed for the closure of the Oregon operation, while similar productivity gains at its newer operations rendered the Connecticut and Indiana facilities obsolete.
“We continue to believe market conditions remain favorable for strong secular growth over the next two to five years in many of our key global markets. Aerospace build rates are expected to continue to increase and OEM backlogs remain at record levels. Global oil and gas exploration and production forecasts project spending to remain strong, which is expected to result in increased upstream capital spending, especially in the U.S.,” Harshman said.
Nucor's Sales, Profits Up in Fourth Quarter
Nucor Corp., Charlotte, N.C., reported net earnings of $170.5 million during its fourth quarter, 24.8 percent better than the same period in 2012. The minimill’s earnings were also up 15.5 percent from the third quarter.
Net earnings for the full year totaled $488.0 million, down 3.2 percent from the previous year.
Nucor's net sales decreased 1 percent to $4.89 billion in fourth-quarter 2013 compared to the previous quarter. Sales were up 10 percent compared to the same period the previous year. The average sales price per ton increased 1 percent over the third quarter and remained flat when compared with fourth-quarter 2012.
For the full year, Nucor’s sales declined 2 percent to $19.05 billion. The average sales price per ton declined 5 percent.
Shipments to outside customers totaled 6.0 million tons in the fourth quarter, a 2 percent decrease from the third quarter, but a 10 percent increase over fourth-quarter 2012.
Total fourth-quarter steel mill shipments decreased 3 percent from the third quarter, but increased 9 percent over the previous fourth quarter. Fourth-quarter downstream steel product shipments to outside customers decreased 6 percent from the third quarter, but increased 3 percent over the fourth quarter of the previous year.
Overall operating rates at the company’s steel mills averaged 74 percent for the full year, consistent with 2012 and 2011. Steel mill utilization rates of 75 percent in the fourth quarter were down from the third quarter’s 78 percent, but up from the 71 percent in fourth-quarter 2012.
Nucor executives said the fourth-quarter operating performance in their steel mills segment was similar to the previous quarter. Sheet steel profitability continued to improve despite a four-week planned outage at the company’s mill in Berkeley County, S.C., for major equipment upgrades, which were completed in the fourth quarter.
The increased sheet steel performance in the second half was due to a series of pricing increases that were supported by competitor supply disruptions and slightly improved demand. Improvements in sheet steel, however, were offset by decreased performance at the company’s bar and structural mills.
“We currently expect first-quarter 2014 earnings to be similar to fourth-quarter 2013 levels. We anticipate that our operating performance will benefit from having no major extended planned outages at our steel mills during the first quarter and from having decreased start-up costs at our Louisiana DRI facility,” said John Ferriola, president and CEO of Nucor. “These improvements will be largely offset by seasonally weaker performance in our fabricated construction products businesses, which we believe will be even further exacerbated by unusually poor weather.”
Steel Dynamics Reports Record Shipments in 2013
Steel Dynamics Inc., Fort Wayne, Ind., reported fourth-quarter net income of $55 million, just shy of the $57 million posted during the previous quarter and the $61 million reported during the same period in 2012. Net income for the full year totaled $189 million, 15.2 percent better than 2012.
The minimill company reported net sales of $1.9 billion during the quarter, level with the prior quarter but an 11.7 percent improvement from 2012. Full-year sales of $7.4 billion were up 1.3 percent compared to the previous year.
"We continued to perform at the top of our industry during 2013, both financially and operationally," said CEO Mark D. Millett. "Our steel operations achieved record annual shipments, with the Flat Roll and Structural and Rail divisions attaining individual records.”
As expected, the company’s fourth-quarter steel shipments declined sequentially due to seasonal issues and scheduled maintenance. However, the segment's fourth-quarter 2013 operating income increased modestly as the expansion in sheet steel metal margins more than offset the lower shipping volumes and reduced long product metal margins.
Steel metal margins expanded in the quarter as average selling values increased more than ferrous raw material costs. The average selling price per ton for the company's steel operations increased $11 sequentially to $805 in the fourth quarter, while the average ferrous scrap cost per ton melted increased $7 per ton.
Operating income attributable to the company's steel sheet operations increased 10 percent when compared to the sequential quarter, more than offsetting the 5 percent decline in operating income from long product operations. Unlike steel sheet, long product pricing did not increase sufficiently to offset increased ferrous raw material costs in the fourth quarter, especially for structural related steel, executives said.
The company's steel mill production utilization rate was basically unchanged at 88 percent in the fourth quarter, compared to 89 percent in the previous quarter. SDI’s annual full-year utilization rate was 88 percent, a 6 percentage point increase over 2012, with increases from the Structural and Rail and Flat Roll divisions. Notably, the Structural and Rail Division operated at an annual rate of 68 percent for 2013, and 71 percent for the second half of the year, which is significantly higher than any time since the precipitous decline in the nonresidential construction markets in late 2008.
Operating income from the company's metals recycling operations was generally unchanged in the fourth quarter, when compared to the sequential quarter, as a 15 percent improvement in ferrous metal margin was offset by decreased shipments and compressed nonferrous metal margins.
“The ongoing overcapacity of recycled shredding locations throughout the United States, especially in the Southeast, continues to constrain profitability and remains a broad industry challenge,” Millett said.
Fabricated steel consumption improved during 2013 with estimated domestic joist shipments increasing 14 percent compared to 2012. The company's fabrication business gained market share during the year, achieving a 24 percent increase in 2013 annual shipments, more than tripling annual operating income, and achieving full-year pretax profitably for the first time since the 2008 economic downturn. Order inquiry continues to improve and is considerably stronger than experienced during the post-2008 economic environment from 2009 through 2012, further supporting the premise of a nonresidential construction market recovery, executives claimed.
"We are optimistic entering 2014. The broader U.S. economy continues to improve,” Millett said. “We believe the non-service sector portion of domestic GDP has the ability to grow at a higher rate than overall GDP, driven by strengthened asset values, domestic energy investment and increased infrastructure spending. Steel consumption would benefit from a recovery in the non-service sector of the U.S. economy.”
U.S. Steel Reports Loss in '13
United States Steel Corp. reported a net loss of $122 million in the fourth quarter, much better than the $1.7 billion accounting loss in the previous quarter but more than double the $50 million operating loss in fourth-quarter 2012. The Pittsburgh-based steelmaker reported a full-year loss of $2.0 billion, including $2.1 billion due to non-cash impairment and restructuring charges.
In 2012, U.S. Steel reported a total net loss of $124 million, which included a loss of $353 million due to the sale of U.S. Steel Serbia.
Net sales during the quarter totaled $4.3 billion, down 4.9 percent from fourth-quarter 2012 but up 3.3 percent compared to the previous quarter. For the full year, U.S. Steel’s sales totaled $17.4 billion, down 9.8 percent from the previous year.
“We are on a multi-year journey to earn the right to grow by improving our balance sheet and achieving sustainable profitability,” said CEO Mario Longhi. “Our fourth-quarter results reflect our early efforts on this journey as all segments were profitable and in total we had an overall improvement in operating results compared to the third quarter."
Fourth-quarter results for the company’s Flat-rolled segment were comparable to the third quarter. Average spot and market-based contract prices were higher in the fourth quarter. A decrease in raw materials and other costs were offset by an increase of approximately $45 million for facility repairs and maintenance costs.
Results for the company’s European segment improved in the fourth quarter and returned to profitability due to higher shipments and lower maintenance costs as a blast furnace outage was completed in the third quarter. Average realized euro-based prices for the majority of the company’s products remained relatively unchanged in the fourth quarter; however, overall average realized prices in the fourth quarter declined compared to the third quarter due to a higher level of hot-rolled shipments.
Fourth-quarter results for the company’s Tubular segment decreased compared to the third quarter due primarily due to lower shipments and average realized prices as end-users decreased drilling activity in order to operate within their 2013 capital budgets, and due to the persistence of imports.
“We expect first-quarter results for our Flat-rolled segment to increase primarily due to higher average realized prices and shipments, as well as reduced repairs and maintenance costs. Average realized prices and shipments are expected to increase as a result of higher contract and spot market prices and improving end-user demand after the fourth-quarter holiday downtime,” Longhi said.
Contributing to the better outlook for the flat-rolled segment is the completion of the projects at Gary Works and Fairfield Works. U.S. Steel will also have reduced idled facility costs after the shutdown of the iron and steelmaking facilities at its Hamilton Works.
Results in the European segment are expected to be comparable to the fourth quarter, while first-quarter Tubular segment results are expected to decrease as the benefits of reduced operating costs and increased shipments are more than offset by a decrease in average realized prices and an increase in substrate costs.