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Net Income Taxed In their first-quarter conference calls with analysts and investors, mill executives generally reported pressure on profitability as the year got under way. AK Steel Sales, Earnings Down in First Quarter AK Steel, West Chester, Ohio, reported a net loss of $11.8 million for the first quarter of 2012, compared to net income of $8.7 million for the first quarter of 2011 and a net loss of $193.9 million for the fourth quarter of 2011. Net sales for the first quarter topped $1.51 billion on shipments of 1,325,900 tons, down from sales of $1.58 billion on shipments of 1,423,100 tons for the year-ago first quarter. The company’s average selling price for the first quarter was $1,138 per ton, a 6 percent increase from the fourth quarter of 2011 and about 3 percent higher than the first quarter of 2011. The higher average selling price for first-quarter 2012 was primarily due to a richer product mix, increased contract sales and higher prices for certain products, company officials said. AK Steel reported an operating profit for the first quarter of $4.1 million or $3 per ton, compared to an operating profit of $19.5 million or $14 per ton for the first quarter of 2011 and an operating loss of $300.7 million or $213 per ton for the fourth quarter of 2011. “We continued to experience a slow, but steady, improvement in market conditions during the first quarter, which helped AK Steel achieve an operating profit,” said James L. Wainscott, chairman, president and CEO of AK Steel. The company ended the first quarter of 2012 with $42.3 million of cash and cash equivalents and $840.6 million of availability under the company’s revolving credit facility, for total liquidity of approximately $883 million. Looking ahead to the second quarter, AK officials said they expect to report positive net income, but declined to offer further guidance. Alcoa Earnings Up Over Previous Quarter, But Down vs. First-Quarter 2011 New York-based aluminum maker Alcoa returned to profitability in the first quarter, reporting income from continuing operations of $94 million during the first three months of 2012. That was an improvement of $287 million over the previous quarter. The gain over fourth-quarter results was driven by strong productivity improvements across all businesses, higher realized prices for aluminum, and improved volume and mix, company officials said. These factors were offset somewhat by a lower realized alumina price and higher input costs. Alcoa’s income in the quarter was down significantly, however, compared to the $309 million earned during first-quarter 2011. “Performance rebounded strongly this quarter due to our proactive cash sustainability actions, our relentless focus on profitable growth, and stabilizing markets,” said Klaus Kleinfeld, Alcoa chairman and CEO. “We are successfully executing on our aggressive strategy to move down the cost curve in our upstream businesses, and drive to record profitability in our midstream and downstream businesses. Challenges remain in this economy, but we approach them better prepared than ever before.” Alcoa recorded first-quarter 2012 revenue of $6.0 billion, up slightly compared to both fourth-quarter 2011 and first-quarter 2011. A 9 percent drop in the realized price of aluminum and a 13 percent drop in the realized price of alumina, year-on-year, were partially offset by higher third-party shipments in the upstream businesses, better volume and mix in the midstream business, and improved volume in the downstream business, the company said. Compared to the previous quarter, Alcoa recorded revenue growth in the first quarter across global end markets, including industrial products, up 14 percent; automotive, up 13 percent; packaging, up 11 percent; and commercial transportation, up 11 percent. Compared to first-quarter 2011, revenues were up 32 percent in commercial transportation, 15 percent in aerospace and 7 percent in automotive, but down 14 percent in industrial products and 5 percent in building and construction. Alcoa continues to project a global aluminum supply deficit in 2012 and reaffirmed its forecast that global aluminum demand would grow 7 percent in 2012, on top of the 10 percent growth seen in 2011. As previously announced, Alcoa is curtailing 390,000 metric tons of its system refining capacity to improve the company’s competitive position and to reflect updated internal demand following smelting curtailments announced earlier this year. Combined with the curtailments and closures of high-cost smelting capacity, the company said it will meet its previously stated goal of moving down the cost curve 10 percentage points in smelting and 7 percentage points in refining by 2015. In January of this year, Alcoa announced the closure or curtailment of 531,000 metric tons of smelting capacity. Of that, 291,000 represented the permanent closure of capacity in Tennessee and Texas that had been idled since 2009. Another 240,000 metric tons, or 5 percent of Alcoa’s smelting capacity, represented curtailments to be taken in Portovesme, Italy, and La Coruña and Aviles, Spain. Allegheny Technologies Earnings Flat on Higher Sales Allegheny Technologies Inc., Pittsburgh, reported net income of $56.2 million on sales of $1.35 billion in first-quarter 2012. Sales were up about 10 percent, and earnings about the same, compared to first-quarter 2011. Compared to fourth-quarter 2011, sales increased $101 million or 8 percent and net income increased $24.5 million or 77 percent. “The first quarter of 2012 was consistent with our expectations as strong secular growth continued in our key global markets and demand improved moderately from the domestic GDP-sensitive markets for our short-cycle products,” said Rich Harshman, chairman, president and CEO. ATI's sales to the key global markets of aerospace and defense, oil and gas/chemical process, electrical energy and medical represented 68 percent of first-quarter sales. In ATI’s High Performance Metals segment, sales increased 46 percent compared to first-quarter 2011 and 11 percent compared to fourth-quarter 2011. “Demand remained strong for our titanium and titanium alloys, nickel-based and specialty alloys, and forged and cast components. We continue to see significant profitable growth opportunities and operating benefits from the integration of ATI Ladish,” Harshman said. “Comments from our OEM customers regarding ATI's integrated supply chain capabilities have been positive, and we are seeing many new opportunities for sales to our key growth markets.” In ATI’s Flat-Rolled Products segment, demand for standard stainless products rebounded from the historically weak fourth quarter of 2011. While standard stainless volume improved by 29 percent from fourth-quarter 2011 and base-price increases were implemented, base prices remain relatively low primarily due to low-priced imports. Sales of high-value flat-rolled products benefited from continued strong demand from the aerospace and the oil and gas markets, but demand for grain-oriented electrical steel continued to be hurt by the weak housing construction market, said company officials. Construction of ATI’s new hot-rolling and processing facility is proceeding on schedule and should be commissioned in first-half 2014. “While uncertainties remain about the euro-zone debt crisis and the pace of GDP growth in the U.S. and China, ATI's diversification and focus on high-value global markets with strong secular growth gives us continued expectation of revenue growth of at least 10 percent in 2012 and segment operating profit in the range of 13 percent to 14 percent of sales,” Harshman said. Nucor Minimill Manages Through Mid-Quarter Trough Nucor Corp., Charlotte, N.C., reported net earnings of $145.1 million during the first quarter, an increase from the previous quarter but down from the same period in 2011. The minimill company reported net earnings of $137.1 million during the previous quarter and $159.8 million during last year’s first quarter. Nucor's consolidated net sales increased 5 percent to $5.07 billion, up from $4.83 billion in the first quarter of 2011, due to a 6 percent increase in the average sales price per ton, partially offset by a 1 percent decrease in total tons shipped to outside customers. During the company’s quarterly conference call, Chairman and CEO Dan DiMicco praised Nucor’s performance “in what Stanford economist Edward Lazear recently described as the worst economic recovery in history.” First-quarter downstream steel products shipments to outside customers increased 3 percent over the first quarter of 2011, but decreased 3 percent from the fourth quarter of 2011. The average scrap and scrap substitute cost per ton used during the first quarter was $445, an increase of 5 percent over the $424 cost in the first quarter of 2011, and an increase of 1 percent compared to the $441 cost in the fourth quarter of 2011. “We saw a dip around the middle of the first quarter. After the dip, we began to see volume and pricing recover,” said John Ferriola, Nucor’s president and chief operating officer. “Considering the current match between capacity and demand, it would seem both volume and pricing will stabilize in the near future.” Overall, operating rates at the company’s steel mills remained relatively flat in the first quarter at about 79 percent, as compared to 80 percent in the first quarter of 2011. The rate was up from the 71 percent in the previous quarter, however, and exceeded the North American average of 78 percent, company officials noted. Construction is continuing at Nucor’s 2.5-million-ton DRI facility in Louisiana. The majority of the equipment will arrive in 2012, and the facility is on schedule for start-up in mid-2013. Nucor will spend approximately $450 million on the DRI project in 2012, part of its estimated $1 billion in capital expenditures for the year. The cap ex budget is more than double the company’s spending in 2011. Nucor’s other major projects in 2012 include the new light and wide hot-mill stand at its Berkeley Co., S.C., operation. The company will be able to produce hot-band, pickled and oiled and cold-rolled at a finished width of 72 inches. It will supply the company’s automotive quality galvanizing line at its Decatur, Ala., facility with 72-inch coils. Additionally, vacuum tank degassers will be installed at its Hickman, Ark., and Hertford County, N.C., locations. In other action during the first quarter, Nucor’s David J. Joseph Co. subsidiary acquired three metal recycling companies that will expand its regional recycling platforms. These acquisitions will provide an additional annual capacity of around 275,000 tons. Among its end markets, Nucor believes the construction market, while still weak, has hit bottom. “While demand for non-residential construction markets remains at very depressed levels, we continue to believe the construction market has, at a minimum, stabilized. In fact, our rebar fabrication and custom engineered metal buildings businesses are seeing year-over-year increases in orders and in backlogs,” Ferriola said. Steel Dynamics SDI Shows Sequential Improvement Steel Dynamics Inc., Fort Wayne, Ind., reported net income of $46 million during the company’s first quarter. Income for the minimill company was down more than 50 percent from the same period of 2011, but up more than 50 percent from the previous quarter. “We were able to achieve sequential quarterly financial improvement in all of our major operating platforms during the first quarter,” said President and CEO Mark Millett during the company’s quarterly conference call. “The good news remains that demand in certain market sectors continues to be steady and flat-roll order entry has regained momentum from mid-quarter levels.” Although 2012 first-quarter net sales of $2.0 billion were consistent with those achieved in the prior-year first quarter, operating income decreased 42 percent. Margins decreased within the company's flat-roll steel and metals recycling operations. The average selling price per ton shipped for the company's steel operations in the first quarter was $875, a decrease of $15 per ton compared to the prior-year quarter. The average quarterly ferrous scrap cost per ton melted increased $18 for the same comparative period. First-quarter 2012 steel shipping volumes were generally flat, although the product mix differed significantly from first-quarter 2011 as flat-roll shipments decreased 107,200 tons and long products shipments increased. Gains from the company’s Structural and Rail division drove the 104,000-ton improvement in the long products segment. In addition, metals recycling and fabrication volumes improved. The declines in the flat-rolled segment were attributed to a mid-quarter dip in sales. Millett said the decline was not caused by weakening demand, but was “procurement driven through erratic buying behavior as consumers tried to time the market.” The flat-rolled market rebounded by quarter’s end. Despite decreased volumes, earnings from flat-roll operations increased 22 percent, as increases in selling prices in the beginning of the quarter were greater than corresponding increases in the cost of raw materials. Flat-roll earnings were nonetheless tempered by mid-quarter price reductions resulting from increased supply brought about by additional domestic flat-roll production capacity and increased import activity, company officials said. Nevertheless, in time Millett believes those two factors will be overcome. The new capacity will be absorbed as the U.S. ramps back up toward its normal annual steel demand of 120 million tons, and imports will be further hampered by more competitive domestic prices. In other segments, SDI experienced an unanticipated outage in the company’s Engineered Bar Division, resulting in a decrease in volumes of about 16,000 tons. However, maintenance work had already been planned for the facility in the second quarter, so the shipment loss was merely pulled forward to the first quarter. During the quarter, SDI announced plans to expand the SBQ offerings at its Pittsboro facility, making it one of the larger single-site SBQ facilities in North America. The company will grow special bar quality capacity by 52 percent to 975,000 tons. The expansion, expected to be complete by the second half of 2013, is focused on the addition of small-diameter SBQ products, serving some markets the company previously was unable to reach. “At a budget of $76 million, it's a very effective use of capital. Furthermore, it will consume about 250,000 tons of billets from our Columbia City structural mill, thereby diversifying their product mix and providing a good baseload to eliminate vagaries of the structural market,” Millett said. Looking ahead, Millett added: “Despite continued uncertainty within the U.S. and global economies, we believe there is the possibility for more stability to develop in 2012 as improvements continue in certain market sectors, such as energy, agriculture, automotive, transportation and construction equipment. Volumes should increase if our customers are correct in their prognostications, and with margins remaining as they are.” Timken Company Sees Record Sales in First Quarter The Timken Co., Canton, Ohio, reported record sales of $1.4 billion in the first quarter of 2012, an increase of 13 percent over the same period a year ago. The increase reflects stronger demand across most of the company's end markets, better pricing and product mix, and the impact of acquisitions. The company also generated record income in the first quarter of $155.7 million, up from $112.7 million during the same period a year ago. “Our record performance, as well as our confidence in our improved full-year earnings outlook, stand as further testimony to the company's ability to execute at a structurally higher level of performance,” said James W. Griffith, Timken president and CEO. “Around the globe, our company is operating very well, leveraging momentum we see in our target markets, earning new business through our expanded product and services portfolio, and successfully driving those gains to the bottom line.” Among recent developments, the company broke ground on a $225 million expansion at its Faircrest Steel Plant in Canton, after securing a new five-year basic labor agreement with members of the United Steelworkers of America. Sales for Timken’s steel segment, including inter-segment sales, totaled $535.5 million in the first quarter, an increase of 11 percent from the same period last year. The results reflect increased pricing and favorable mix driven by strengthening demand in the oil and gas markets, partially offset by lower shipments to the industrial and mobile on-highway sectors. Raw-material surcharges increased approximately $5 million from the first quarter last year. Timken officials forecast sales growth of 7 to 10 percent overall in 2012, with Mobile Industries sales flat to up 5 percent; Process Industries sales up 10 to 15 percent; Aerospace and Defense sales up 10 to 15 percent; and Steel sales up 5 to 10 percent, driven largely by demand in the energy markets. U.S. Steel Loss Overshadows Improved Operating Results United States Steel Corp. Pittsburgh, reported a first-quarter 2012 net loss of $219 million, compared to a fourth-quarter 2011 net loss of $211 million and a first-quarter 2011 net loss of $86 million. Adjusted first-quarter 2012 net income was $110 million, including adjustments for a $399 million after-tax loss on the sale of U.S. Steel Serbia in January. “We reported a significant improvement in our operating results in the first quarter as compared to the fourth quarter, mainly driven by improved average realized prices and shipments for our Flat-rolled segment. Our Tubular segment had another strong performance reflecting the continued strength of oil-directed drilling. U.S. Steel Europe results improved, excluding the loss on the sale of U.S. Steel Serbia, but continue to reflect the challenging economic situation in the region,” said U.S. Steel Chairman and CEO John P. Surma. U.S. steel management believes segment income from operations is a key measure in evaluating company performance. U.S. Steel reported income from operations of $295 million or $52 per ton in the first quarter of 2012, compared with a loss of $26 million or $5 per ton in the fourth quarter of 2011 and income of $4 million or $1 per ton in the first quarter of 2011. Flat-rolled income from operations improved significantly from fourth-quarter 2011, primarily due to higher average realized prices and shipments resulting from improved end-user demand and some inventory replenishment by spot customers. First-quarter prices increased by $23 per ton to $764 due to higher average realized prices on both spot and contract business. Shipments increased by 8 percent to 4.1 million net tons, the highest shipping level since third-quarter 2008, the company said. Additionally, operating costs decreased in the first quarter as a result of operating efficiencies and reduced energy and facility maintenance costs. The raw steel capability utilization rate was 83 percent for the Flat-rolled segment, an increase from the fourth-quarter rate of 75 percent. Tubular first-quarter results improved from fourth-quarter 2011 as the demand for oil country tubular goods and line pipe remained strong. Shipments of 529,000 tons represented a record quarterly shipping level and an increase of 10 percent from fourth-quarter 2011. Average realized prices increased slightly to $1,727 per ton. “We expect all three of our operating segments to reflect positive results from operations with total segment results consistent with the first quarter,” said Surma, looking ahead to the second quarter. “Our European segment is expected to return to positive income from operations reflecting improved average realized prices. “Shipments and average realized prices for our Flat-rolled segment are expected to remain comparable to the first quarter as end-user demand remains stable and spot market inventories appear to be aligned with end user demand. “Second-quarter 2012 results for our Tubular segment should remain consistent with the solid performance achieved in each of the past three quarters. Average realized prices are expected to remain near first-quarter levels. Shipments are expected to remain strong, but slightly below the record levels of the first quarter. End-users continue to rebalance their inventory positions as oil-directed drilling continues to drive the rig count, while natural gas drilling is being negatively affected by high storage levels and low prices,” Surma said.