U.S. Steel Reports Smallest Loss in Five Quarters as Metal Prices Increase

U.S. Steel Corp., the nation’s second-largest domestic steelmaker by sales, reported its smallest loss in five quarters as higher metal prices and sales reduced the effect of rising material costs.

The first-quarter net loss of $157 million, or $1.10 a share, was smaller than analysts estimated and narrowed from a loss of $439 million, or $3.78, a year earlier, Pittsburgh-based U.S. Steel said today in a statement. Sales rose 42 percent to $3.9 billion.

Chief Executive Officer John Surma said in January the company was seeing improved order rates for the metal from customers making cars and appliances, while demand for steel used in construction was still “soft.” U.S. Steel is reaping the benefits of having its own iron-ore supplies as costs for the key steelmaking ingredient jumped 90 percent.

“U.S. Steel is poised to show significant improvement in margins and profitability in the coming quarters,” David Martin, a New York-based analyst with Deutsche Bank AG, wrote in an April 13 report. “Raw material costs for steelmaking are rising, and U.S. Steel is a leading beneficiary in our coverage of this trend via its integrated business model.”

U.S. Steel was projected to report a loss excluding some items of $1.39 a share, the average estimate of 13 analysts surveyed by Bloomberg. Sales were projected to rise to $3.78 billion.

‘Steady Recovery’

“Our operating results have been making a slow and steady recovery since hitting a low point in the first quarter of 2009 until this quarter, when the benefits of improved utilization rates and selling prices began to be realized in a more significant way,” Surma said on a conference call with analysts today. Surma predicted a return to profit this quarter.

The company had costs of about $27 million in the quarter for tax benefits ended under the new U.S. health-care legislation.

“It was nice to see that turnaround in momentum,” Mark Parr, a Cleveland-based analyst at Keybanc Capital Markets, said on today’s call. “It’s too bad the market took the gas out of the stock today, but I think that’s hopefully just a short-term thing.”

U.S. Steel fell $3.44, or 5.7 percent, to $56.63 at 4 p.m. in New York Stock Exchange composite trading. The shares have more than doubled in the past year.

Stocks tumbled globally, with the benchmark European index sinking the most since November, as credit-rating downgrades of Greece and Portugal fueled concern debt-laden nations are moving closer to default. The Dow Jones Industrial Average fell 1.9 percent.

Steel, Iron Ore

Steel prices in the U.S. increased to the highest level in 16 months in March as producers passed on rising costs for raw materials. The average price of hot-rolled steel sheet, the benchmark metal used in autos and appliances, climbed to $650 a ton, on average, in March from $500 in December, according to Purchasing magazine.

Brazil’s Vale SA and BHP Billiton Ltd., based in Melbourne, this year broke with a 40-year custom of selling iron ore on annual contracts, with the Brazilian supplier winning a 90 percent price increase from Japanese mills for quarterly contracts started April 1.

AK Steel Holding Corp., the third-largest U.S. steelmaker by 2009 sales, on April 20 said rising iron-ore costs may harm second-quarter profit.

Nucor Corp., the largest U.S. steelmaker by 2009 sales, reported April 22 its second straight quarterly profit, with net income of $31 million, or 10 cents a share. The company doesn’t use iron ore, working instead by recycling scrap steel to make metal.

To contact the reporter on this story: Edmond Lococo in Boston at elococo@bloomberg.net; Rob Delaney in Toronto at robdelaney@bloomberg.net.

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