US Steel announces tough outlook for Q1 2010

While announcing 2009 results, commenting on US Steel’s outlook, Mr John P Surma chairman & CEO of US Steel said that “We expect to report an overall first quarter 2010 operating loss in line with the fourth quarter 2009 as gradually improving business conditions are not yet fully reflected in our operating results. We continue to experience improved order rates from several of our end markets. Automotive, service center, converter and appliance customer order rates in North America and Europe are at or near their highest levels in the last twelve months, while in other markets, such as construction in North America, demand remains soft, but due to the low levels of inventory and the anticipated seasonal increases in activity at the end of the first quarter, our construction order book remains stable. A gradually strengthening economy should result in improvements in real demand, while apparent demand will likely be positively influenced by the restocking of the manufacturing supply chain, which we believe is under way. Relatively low levels of flat rolled product imports, if continued, are also expected to support improved order rates. Our Tubular operations are also continuing to experience favorable demand trends, most notably in alloy product at our welded operations in East Texas. At the same time, spot market prices are increasing across all of our segments in response to increased order rates and global raw material cost pressures.”

He added that “We continue to believe that the US and global economies are in the early stages of a gradual recovery. While we are becoming more optimistic, primarily due to improvements we are starting to see in the manufacturing sector, we remain cautious in our outlook for end user demand.”

He said “Flat rolled results for first quarter 2010 are expected to be comparable to fourth quarter 2009 as the benefits of increases in average realized prices and shipments and reduced facility repair and maintenance costs are expected to be offset by the absence of approximately USD 55 million of favorable effects from LIFO inventory liquidations and adjustments to employee layoff benefits. Average realized prices are expected to increase from fourth quarter 2009 as we expect to begin realizing the impact of increasing spot market prices later in the first quarter. Increases in our index based contract prices would be realized later as higher published market price assessments enter the index calculations for future periods. We are currently making steel at six of our seven North American steelmaking locations, with the exception being our Lake Erie Works, which represents approximately 10% of our annual Flat rolled raw steel capability. We expect to complete maintenance work on our largest blast furnace, the No 14 Blast Furnace at Gary Works, late in the first quarter and have all available capacity in operation at these six locations before the end of the quarter. Overall, raw steel capability utilization rates are expected to increase from the fourth quarter of 2009.”

He added that “First quarter 2010 results for USSE are expected to be comparable to the fourth quarter 2009 as the benefits of increased shipments and operating efficiencies are expected to be offset by higher raw material costs. While euro based transaction prices are expected to be comparable to the fourth quarter, reported average realized prices are expected to be lower due to foreign currency translation effects. We expect to complete maintenance work on the #3 Blast Furnace at USSK in early February and operate all five of our blast furnaces for the remainder of the quarter.”

He said that “We expect our Tubular operations to remain profitable in the first quarter. However, results are expected to decrease from the fourth quarter as the benefits of increased shipments are expected to be offset by increased costs as we continue to increase production to meet increased order rates, as well as the absence of the USD 10 million of favorable fourth quarter items discussed above. Seamless and welded tubular product prices are expected to improve throughout the quarter, as a result of recently enacted price increases. However, reported average realized prices are expected to decrease slightly as compared to the fourth quarter due to a higher proportion of welded tubular product shipments. We expect increased operating rates at all of our pipe facilities in the first quarter, most notably our welded pipe facility in East Texas. These expected increases should also benefit our Flat rolled operations that supply substrate requirements to our welded pipe facilities.”

Mr Surma said that “Capital expenditures for 2010 are expected to total approximately USD 530 million and remain focused largely on environmental and other infrastructure projects. We continue to evaluate investments of long term strategic importance, including projects to invest in production of coke and coke substitutes, given that some of our existing coke batteries are approaching the end of their useful lives, to reduce coke requirements in Serbia through coal injection, to enhance our Tubular operations in order to more efficiently serve customers’ increased focus on shale natural gas resources and to allow us to increase our participation in the automotive market as vehicle emission and safety requirements become more stringent. In light of the significant capital commitment that such projects would entail over the next several years, we may seek to secure some long term funding for such projects and general corporate purposes prior to committing to such projects.”

He further added that “Total costs for pension and other benefits plans are expected to be approximately USD 420 million in 2010 compared to USD 462 million in 2009. Excluding the USD 93 million of charges in 2009 related to various workforce reduction programs and the sale of the Elgin, Joliet & Eastern Railway Company early last year, these costs are expected to increase by approximately USD 50 million in 2010. Company payments for these plans in 2009 were USD 657 million, which included a voluntary contribution of USD 140 million to our main defined benefit pension plans, approximately USD 75 million related primarily to Voluntary Early Retirement Programs, and reflects the agreement with the United Steelworkers to defer the 2009 mandatory contribution of USD 75 million to retiree health and life insurance trusts until 2012. In 2010, we expect to make payments of approximately USD 570 million before considering any voluntary contributions to our main defined benefit pension plan. As also agreed with the USW, we could further reduce these payments by up to USD 75 million should we choose to use the 2008 mandatory contribution to cover 2010 retiree health and life insurance payments and then refund this amount in 2013. At year end, our pension plans were under funded on an accounting basis by approximately USD 1.7 billion and other benefits plans were under funded by approximately USD 2.9 billion as compared to an under funded status of USD 2 billion for pension plans and USD 3.1 billion for other benefit plans as of December 31st 2008.”

Source: Steel Guru