U.S. Steel Cuts Losses, Closes in on Profitability
United States Steel Corp. moved closer to profitability during the second quarter. The Pittsburgh-based steelmaker reported a net loss of $25 million, its smallest quarterly loss since the steel downturn at the end of 2008.
U.S. Steel’s losses have been shrinking steadily since the first quarter of 2009, when it posted a quarterly loss of $439 million. The company reported a loss of $157 million during this year’s first quarter.
"Operating results improved significantly from the first quarter of 2010,” said Chairman, President and CEO John Surma. “Sequentially, the most notable improvement was in our flat-rolled segment, which benefitted from increased average realized prices and healthy order rates in most of our markets. In Europe, we had our second consecutive profitable quarter, and our tubular segment income from operations more than doubled as compared to the first quarter of 2010."
Flat-rolled results improved significantly from the first-quarter 2010, primarily reflecting the benefits of increases in average realized prices, as well as higher trade and intersegment shipments, lower energy costs and increased production volumes, company officials said. Partially offsetting these improvements were increased facility repair and maintenance costs, including $60 million of repair and maintenance at Lake Erie Works, and higher raw material costs.
The raw steel capability utilization rate for the flat-rolled segment increased from 73 to 82 percent as the company operated all of its steelmaking facilities, except Lake Erie. Adjusting for Lake Erie Works, which restarted steel production late in the second quarter, U.S. Steel’s flat-rolled business operated at 91 percent of available raw steel capability in the second quarter.
Shipments increased by 14 percent to 4.1 million tons and average prices increased by $46 per ton from the first quarter of 2010 to $700 per ton. The higher average prices were driven by increases in both spot and index-based contract prices.
Second-quarter 2010 results for the company’s tubular segment improved significantly from the first quarter of 2010. The benefits of increases in average prices and higher shipments were only partially offset by increased costs for steel substrate, most of which is supplied by the company’s flat-rolled segment. Shipments increased 40 percent to 433,000 tons, and the reported average realized price for the segment increased by $107 per ton to $1,496 per ton. Operating rates continued to increase throughout the quarter in line with demand trends, particularly for alloy oil country tubular goods.
"We expect to report an overall operating profit in the third quarter as the U.S. and European economies continue to work their way through a gradual and uneven recovery process” Surma said. “Operating results are expected to be below the second quarter largely due to a decrease in shipping and production volumes for our flat-rolled segment, reflecting slower order rates, primarily from spot market customers thus far in the quarter.
“Carbon flat-rolled inventory levels on a months-of-supply basis at North American service centers remain below historical averages and end-user demand appears stable. Similar market conditions prevail for our European operations," he added.
The company expects its third-quarter results for flat-rolled to be near break-even levels due to lower trade and intersegment shipments and production volumes, and increased costs for raw materials and energy.
Surma says the current buying patterns for its customers break down into two groups. Demand remains stable from customers tied directly to end markets. However, customers that carry inventory, such as service centers, have become much more cautious in their buys. “There’s a bit of a pause, and has been for quite some time. If the end-use demand in the other markets remains stable, inventories aren’t particularly high and lead times are relatively short, it all could mean there are better order rates ahead in the third quarter,” he said.
Surma, who has been a vocal advocate for improving workplace safety, expressed his dismay over two recent accidents at company facilities. An explosion of a coke battery at the Clairton Coke plant July 14 reportedly injured up to 20 employees and contractors, a handful of them seriously, while another incident at the Gary Works high line injured another worker.
“We are saddened and deeply troubled. We do not accept excuses as ‘accidents happen’ or ‘it’s a dangerous job.’ We are committed to finding the root cause of these incidents,” Surma said.