U.S. Steel Falls After Forecast Cut on Oil Slump, ImportsSonja Elmquist
U.S. Steel Corp. tumbled the most in more than three years after posting a surprise loss and cutting its full-year profit forecast as demand from energy companies slumped while imports of the metal climbed.
Shares of the country’s second-biggest steelmaker fell 10 percent to $24 at 10:26 a.m. in New York. It earlier dropped 11 percent, the biggest intraday decline since September 2011.
Earnings before interest, tax, depreciation and amortization are expected to be as low as $700 million in 2015, the Pittsburgh-based company said Tuesday in a statement. It previously saw Ebitda of $1.1 billion to $1.4 billion.
U.S. Steel has reduced production this year because of fewer pipe and tube orders from oil and natural gas producers. The average number of active oil and gas rigs in North America fell 50 percent since the beginning of the year, according to Baker Hughes Inc. data.
“We have a significant presence in the energy business and the flat-rolled segment is the sole supplier to the energy business,” Chief Executive Officer Mario Longhi said Wednesday on a conference call, referring to U.S. Steel’s flat-rolled unit, its largest business.
Lower energy-industry demand and an increase in imports is weighing on the company’s realized steel prices. Those prices will see “significant decreases” in the current quarter compared with the first quarter, Dan Lesnak, director of investor relations for U.S. Steel, said on the call.
A strengthening dollar has also made foreign steel cheaper for U.S. buyers, exacerbating a surge of foreign-made steel being sold in the U.S. Imports jumped 20 percent in the quarter, government data show, and now account for about one-third of the $100 billion U.S. steel market. Longhi is urging lawmakers to restrict the rapid increase in imports.
The nation’s steelmakers on average used 73 percent of their capacity in the quarter, down from 77 percent a year earlier, according to data from the American Iron and Steel Index. U.S. Steel’s own utilization rate was even lower, sliding to 60 percent from 83 percent.
U.S. Steel’s relatively high fixed costs are distributed across a reduced output, resulting in higher-than-expected costs per ton, Philip Gibbs, a Cleveland-based analyst at KeyBanc Capital Markets Inc., said in an interview Tuesday.
“The toughest part for people to swallow is that costs are as high as they were,” Gibbs said. “Clearly it’s hard to see the benefits of the Carnegie Way when they’re operating at these low levels of utilization.”
The Carnegie Way is the title of U.S. Steel’s project to streamline operations and bolster earnings. It’s named after the company’s founder, Andrew Carnegie.
The first-quarter net loss was 52 cents a share, compared with net income of 34 cents a year earlier. Excluding one-time items, the loss was 7 cents a share, while the average of 18 analysts’ estimates was for a profit of 23 cents.
Sales also disappointed, dropping to $3.27 billion from $4.45 billion and trailing the $3.44 billion average estimate.
The average price of hot-rolled steel coil, a benchmark product used in automobiles, was $529 a ton in the period, down 19 percent, according to figures from The Steel Index.
Lawmakers are preparing to debate a senate bill that would make it easier for domestic companies to argue they’re being harmed by foreign producers that they say are unfairly subsidized by their governments.
U.S. regulators look primarily at lost profits when deciding on trade action. The steelmakers want lost jobs, idled production and deferred research and development to be taken into account as well, something they say threatens their long-term competitiveness.