5-2010 First-Quarter Report & Outlook: Mills
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2010 Off to a Good Start

By the Staff of Metal Center News

In their first-quarter conference calls with analysts and investors, executives from the industry’s leading publicly held mills and service centers reported that the market’s turnaround is gradually gaining momentum.

AK Steel : Doubling of Demand
Yields Quarterly Profit
While AK Steel Holding Corp., Middletown, Ohio, is on the road to recovery, that road will not be without potholes, said James Wainscott, the steelmaker’s chairman, president and chief executive officer.

AK Steel reported a net income of $1.9 million on net sales of $1.4 billion in the first quarter, a substantial improvement from the net loss of $107.8 million on sales of $922.2 million in the first quarter of 2009.

Wainscott said that overall demand was double that of a year ago for AK Steel’s products—for carbon steel, stainless and other specialty steels—especially among its automotive and service center customers. “In fact, demand from customers in these markets has been stronger than we had expected.”

The electrical steel market, however, remains slower than expected because of the weak recovery in the housing and construction markets, as well as lower than anticipated capital and maintenance spending by utility companies due to reduced electricity consumption, Wainscott said.

AK’s stainless business has been particularly strong, helped by the higher nickel and other raw material surcharges. Its Mansfield, Ohio, mill is running full out producing 400-series stainless to meet the increased automotive demand, Wainscott said. AK’s specialty steel strip and commodity stainless businesses are also healthy.

“We are also delighted by our carbon steel business, which is very strong again after being down dramatically,” he said. “At one point last year, we were producing at 40 percent of our capacity and now we’re at 90 plus.”

Wainscott has been very encouraged by rising sales and low inventory rates at both carbon and stainless steel service centers. In March, daily service center shipments rose 4 percent for carbon flat-roll and 7 percent for stainless steel compared with those in February. Both carbon and stainless flat-roll inventory levels (2.1 months on hand for carbon and 2.5 months for stainless) were well below historical averages, he noted.

In the automotive market, light vehicle production has been steadily increasing. Analysts now predict U.S. light vehicle sales will total about 12 million units in 2010, up from about 10 million units last year. Finished-vehicle inventories are back in line and promise continued production, Wainscott said, having fallen to 53 days of sales by late March, compared with 67 days in February and 82 days at the end of March 2009.

While down about 30 percent year on year, AK Steel’s first-quarter grain-oriented electrical steel shipments were still up nearly 8 percent from the fourth quarter. Wainscott expects them to remain flat in the second quarter before picking up in the second half of 2010.

As the global economy recovers, AK Steel’s input costs are rising, Wainscott noted. Scrap prices have risen 17 percent since November and are now higher than pre-recession 2008 levels. Iron ore pellet prices are expected to rise about 30 percent. Construction of AK’s SunCoke Middletown plant is finally under way despite appeals filed regarding its permits. “Completion of that facility, which is expected in mid-2011, cannot happen soon enough, as the price and availability of blast furnace coke continues to be of significant long-term concern to us,” Wainscott said.

AK Steel has also begun work on its Butler, Pa., electric furnace upgrade, which is expected to give the company about 1.4 million tons of annual capacity, enabling it to make its own carbon slabs. The No. 5 furnace is expected to be up and running by summer 2011.

Alcoa: Aluminum Giant Cuts Losses
Aluminum giant Alcoa continued to cut its losses during the first quarter. Its net loss for first-quarter 2010 was $201 million, compared to $277 million lost in the previous quarter and $497 million lost during the first quarter of 2009.

“Our performance continued to improve in the first quarter thanks to higher realized prices and strong operational results,” said Klaus Kleinfeld, Alcoa president and CEO. “Most of the special items we reported are non-cash and include proactive decisions to structurally improve the company’s profit potential.”

Those items included $295 million in special charges, including restructuring and environmental costs of $135 million from the permanent closure of idled smelters in North Carolina and Maryland and $115 million in tax impacts of the new health care law.

Alcoa’s revenues for first-quarter 2010 totaled $4.9 billion, a 10 percent decrease from the fourth quarter of 2009. Revenues in first-quarter 2009 were $4.1 billion.

The company met all of its operational targets in the first quarter, Kleinfeld said, including procurement, overhead, capital expenditures and working capital.

“Our markets are gradually improving and both policy trends and consumer sentiment bode well for aluminum demand. Just a few days ago, the U.S. finalized new rules that require increased fuel efficiency and for the first time set greenhouse gas emissions standards for cars and light trucks. In addition, a growing number of customers are requesting sustainable products. Factors like these play to aluminum’s superior advantages as a light, strong, versatile and infinitely recyclable material,” Kleinfeld said.

In its flat-rolled products division, Alcoa reported after-tax operating income of $30 million, down $7 million from the fourth quarter, partly due to the company’s decision to curtail sales to a North American can sheet customer. Improved pricing across many markets, including can sheet and capacity rationalization to bring costs in line with volumes, more than offset the impact of lower can sheet shipments, officials said.

Alcoa’s performance in its engineered products and solutions segment was up 42 percent due to productivity gains and a modest improvement in end market conditions.

Among end products, Alcoa sees global improvement in both automotive and heavy truck and trailer; declining sales in commercial building, construction and industrial gas turbines; and flat performance in aerospace and can packaging. However, destocking in the aerospace supply chain is finally nearing an end.

“If you sum up the whole end market situation, they continue to strengthen. 2010 will clearly be better than 2009, but still below historic norms in many of the markets,” Kleinfeld said.

Carpenter Technology: Gaining Momentum, But Profits Down
Carpenter Technology Corp., Wyomissing, Pa., reported net income of $2.1 million for its 2010 third quarter ended March 31. Net income for the 2009 third quarter was $13.1 million.

“Although still below last year’s results, we continue to gain momentum in our business that reflects increasing strength in our end markets and initial impacts from our growth strategies,” said Gregory A. Pratt, chairman and interim president and chief executive officer. “As demand improves at a variable recovery pace, we are leaning forward to meet the needs of our customers at this critical point in the cycle. Our new premium melt capacity positions us to meet increasing demand as it occurs. We expect further improvement in our revenue and earnings between the third and fourth quarter and are on track to meet our financial targets for the full year.”

Net sales for the third quarter were $336.9 million, up 2 percent from the prior year. Excluding surcharge revenue, net sales were $256.7 million, down 4 percent from a year ago. Total pounds sold in the third quarter were 20 percent higher than the 2009 third quarter.

Reporting on major markets, Carpenter’s aerospace sales were $149.4 million in the third quarter, up 2 percent compared with the same period a year ago. Excluding surcharge revenue, aerospace sales were down 4 percent on 2 percent lower volume. When compared to the second quarter, aerospace volumes increased 36 percent, reflecting a surge in demand for engine components.

Carpenter’s industrial market sales were $74.4 million, flat compared with the third quarter of fiscal 2009. Consumer market sales were $32.8 million, an increase of 55 percent from the third quarter of fiscal 2009. Medical market sales were $29.8 million in the third quarter, flat with a year ago. Automotive market sales were $27.6 million, an increase of 30 percent from a year earlier. Energy market sales of $22.9 million declined 38 percent from third-quarter 2009.

International sales in the third quarter were $105.0 million, a decrease of 6 percent compared with the same quarter a year earlier. Revenue in Europe was down 13 percent compared with unusually strong energy sales a year earlier, and Asia-Pacific was flat.

Century Aluminum: In the Black for the Quarter, Despite Lower Shipments
Century Aluminum Co., Monterey, Calif., reported net income of $6.3 million for the first quarter of 2010, up from a net loss of $114.6 million in first-quarter 2009.

Sales for the first quarter of 2010 were $285.4 million, compared with $224.6 million for the first quarter of 2009. Shipments of primary aluminum for the 2010 first quarter were 144,677 metric tons, down from 165,488 tons shipped in the year-ago quarter.

“Overall, the market environment continued to exhibit signs of improvement during the early part of 2010,” said Logan W. Kruger, Century’s president and chief executive officer. “Industrial activity in developed economies increased at an encouraging pace, while China and other developing regions remained on an impressive growth trajectory. Inventory levels, however, remain high and new capacity continues to increase production levels in certain key regions. Against this backdrop, we are closely monitoring changes in financial markets and industry pricing dynamics, and the impact these factors could have on the amount of metal available to the market, regional premiums and the price of the commodity itself.

“Century had a positive quarter,” continued Kruger. “Our smelters in Kentucky and Iceland operated safely and efficiently. The company produced good cash flow, and we continue to build our financial strength. We are encouraged by the passage of legislation in West Virginia relating to electric power rates. Although this development is a key factor in enabling the possible restart of the Ravenswood smelter at some point in time, significant work remains. At our Helguvik project in Iceland, we continue to spend considerable effort on finalizing the conditions required for a restart of major construction activity and believe we should be able to achieve this objective later in the year.”

Nucor Steel: Profits Rebound Despite Weak Construction
While continuing to suffer from its exposure to the weak construction market, Nucor Corp., Charlotte, N.C., moved into the black in the first quarter, reporting a net income of $30.96 million on net sales of $3.65 billion. Sales improved 37.7 percent, up from $2.65 billion in first-quarter 2009, when Nucor suffered a loss of $189.65 million.

While overall steel demand has improved in recent months, the recovery has been uneven. Most of the gain in the company’s flat-roll business was due to stronger demand in the automotive and energy segments, said John Ferriola, chief operating officer of steelmaking operations.

Daniel DiMicco, chairman, president and chief executive officer, noted that Nucor’s sheet mills saw an 80 percent increase in operating profits in the first quarter. The company’s order bookings continue to be strong for sheet and plate products.

“The automotive upturn is also benefitting our mills that serve the SBQ (special bar quality) and cold-finished markets. However, extremely weak nonresidential construction continues to depress demand for all products,” Ferriola said. Nucor expects conditions to remain challenging in the construction sector.

DiMicco also questions the sustainability of auto-related demand. Much of the recent increase came as automakers were rebuilding their vehicle inventories. First-quarter build rates might not carry on through the rest of the year, he said.

On the plus side, DiMicco said, apparent and real demand appear to be more in balance. Orders from service centers and OEMs will soon reflect actual consumption rather than inventory rebuilding, he predicted.

Nucor’s recent 50/50 NuMit joint venture with Mitsui & Co., to invest in various steel-related opportunities in North America and around the world, was a major strategic step forward for the steelmaker, DiMicco said. “We are particularly excited about the immediate growth opportunities that NuMit provides us in high-value-added sheet steel processing,” he added. NuMit will implement Nucor’s previously announced plan to build a greenfield processing facility in Monterrey, Mexico.

Nucor has also made progress with a number of other growth initiatives. In March, its David J. Joseph unit completed the acquisition of Ocala Recycling, adding four scrap yards to DJJ’s scrap processing platform. In addition, Nucor’s Arizona wire rod and bar mill has begun production and a heat-treat project at its Hertford County plate mill is on schedule to begin operations in the first quarter of next year. Nucor is also in the process of installing tension levelers at its Berkeley County and Crawfordsville sheet mills.

In addition, Nucor more than doubled its export volumes in the first quarter and plans to further capitalize on the stronger economic recoveries being experienced elsewhere in the world, Ferriola said. Nucor is well positioned to do so, he added, given that 60 percent of its steel capacity has access to deep water.

Nucor’s proposed Louisiana pig iron plant continues to experience delays. The company is still awaiting its environmental permit and continues to monitor the debate over climate change legislation in Washington, which could alter the economics of the project, DiMicco said.

Steel Dynamics: Results Reflect a More Stable, Positive Outlook
Steel Dynamics Inc. reported net income of $65 million for the first quarter of 2010, a jump of more than 50 percent from the previous quarter. The Fort Wayne, Ind.-based steelmaker had reported net income of $27 million during the previous three months.

The improvement was even more dramatic compared to the same three months of 2009, when SDI reported a net loss of $88 million.
First-quarter net sales of $1.6 billion were 32 percent higher than net sales of $1.2 billion in the fourth quarter of 2009, and 91 percent higher than net sales of $815 million in the first quarter of 2009.

“In the first quarter, the company’s steel operations gained momentum, producing operating income of $138 million,” said Keith Busse, chairman and CEO. “As we continue to compete aggressively for orders, our employees have moved quickly to ramp up production as opportunities arise, shipping quality products to meet customer needs while doing an excellent job in controlling costs.”

Sequentially, shipping volumes in all operations except fabrication increased from the fourth quarter, and were significantly higher than the year-ago quarter. Steel shipments for the first quarter were 1.4 million tons, 20 percent higher than the fourth quarter.

Steel segment profit margins came under slight pressure as SDI’s average scrap cost increased $56 per ton compared to the fourth quarter, while average selling prices increased $50 per ton to $736 from $686 in the fourth quarter.

In metals recycling, OmniSource’s ferrous metals shipments were 1.2 million gross tons, up 15 percent from the fourth quarter. Its nonferrous shipments were 238 million pounds, up 17 percent from the fourth quarter.

The company’s sheet products and special-bar-quality steels drove the operational strength in the first quarter. The Flat Roll Division ran at capacity in the first quarter, while The Techs approached 85 percent utilization. Both continue to have strong order books, Busse said.

Demand for SBQ strengthened dramatically in February and continued in March, which has resulted in the strongest order backlog in the history of SDI’s Engineered Bar Products Division. The company has seen sequential improvement in backlogs in other long-products steel businesses, but the structural steel market remains very challenging as nonresidential construction remains weak.

“We have been successful offsetting some of this weakness by serving new customers with new products. At our largest long-products division, Structural and Rail, we have achieved recent success in rail development and have obtained customer certification for our AREMA Standard Strength rail and for welded rail. We expect the volume of rail shipments to grow progressively through the year,” Busse said.

Also during the quarter, SDI’s Mesabi Nugget plant produced its first batch of nuggets and delivered its first shipment to the company’s Butler, Ind., facility in February. Altogether, the plant shipped 7,200 tons of nuggets to Butler, with production ramping up to 12,000 tons in April.

“Our goal is to achieve self-sufficiency of iron supply for our steel operations as Mesabi Nugget production increases and complements the current supply of iron from our Iron Dynamics operation,” Busse said. “With the rapid progress being made, we are gaining confidence that we will achieve that goal by 2011.”

Looking forward, Busse said, a “gradually improving economy with moderate strengthening of steel demand is resulting in firmer order backlogs for our mills, which also implies continued better conditions for the scrap markets. However, we have not yet seen signs of a significant rebound in our construction-related businesses, which means these operations will likely continue to negatively impact our results. Overall, though, we now see a more stable and positive outlook for the coming quarter and second half of 2010.”

U.S. Steel: Forecasts Profits in All 3 Markets
United States Steel Corp., Pittsburgh, Pa., reported a first quarter 2010 net loss of $157 million, an improvement from the $267 million loss in the previous quarter and the $439 million loss in the same quarter last year, and the company expects to return to profitability in the second quarter.

“We reported a significantly reduced overall loss from operations in first quarter 2010 as compared to fourth quarter 2009 mainly due to improving business conditions and a strong operating performance for our flat-rolled segment. In Europe, we returned to profitability, and our tubular segment had another strong quarter,” said U.S. Steel Chairman and CEO John P. Surma.

During the quarter, the company took several actions to enhance liquidity and position for growth, including paying down some debt and issuing notes that netted the company $582 million for long-term strategic investments.

Employees at U.S. Steel Canada’s Lake Erie Works have ratified a new three-year labor agreement, clearing the way for the company to restart steel finishing, cokemaking and steelmaking operations there in a staged process throughout the second quarter.

Commenting on specific segments, U.S. Steel officials said results for flat-rolled in the first quarter improved significantly from the previous quarter due to the benefits of higher average realized prices and shipments, improved operating efficiencies, reduced costs and increased intersegment shipments to the tubular division. Flat-rolled’s raw steel capacity utilization rate increased to 73 percent in the first quarter, compared to 64 percent in the fourth quarter of 2009.

Shipments increased 12 percent to 3.6 million net tons during the quarter. Average realized prices increased to $654 per net ton, an increase of $21 per ton from fourth-quarter 2009, as the company began realizing the effect of increasing spot market prices late in the first quarter.

Surma said inventories in all of its measurable end markets, including service centers, automotive, appliances and major equipment manufacturers, seem to be running rather tight. “Our customers are cautious, and we’re fine with a cautious buyer. It keeps our position and theirs in the right frame. We’re reasonably confident they’ll remain that way,” he added.

First quarter 2010 results for U.S. Steel Europe also improved from the fourth quarter, primarily due to the benefits of a 22 percent increase in shipments, to 1.5 million tons. Capability utilization was 87 percent in the first quarter, up from 80 percent in the fourth quarter. With maintenance work completed, all five of U.S. Steel’s European blast furnaces were in operation for the majority of the first quarter.

First quarter 2010 tubular segment results improved from the fourth quarter of 2009, though the benefits of increased shipments were partially offset by increased costs for steel substrate. Operating rates increased at all the company’s major pipe facilities, most notably its welded pipe facility in East Texas. Shipments increased by 50 percent to 310,000 tons, primarily due to increases in welded pipe orders. The reported average realized price for the segment decreased by $73 per ton to $1,389 as compared to $1,462 per ton in the fourth quarter of 2009 due to product mix and the impact of bottoming spot market prices towards the end of last year, said company officials.

Looking ahead to the second quarter, Surma said the company anticipates being profitable in all three of its operating segments due to gradually improving business conditions, especially in flat-rolled. “We continue to experience healthy order rates from most of our end markets, resulting in increased production levels. We remain cautiously optimistic in our outlook for end-user demand for all three of our operating segments in line with a gradual and continuing economic recovery.”
  
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Wednesday, November 26, 2014