U.S. Steel Benefits from Stronger Prices, Shipments in First-Quarter 2012, Despite Major Serbian Loss

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Researched by Industrial Info Resources (Sugar Land, Texas)--Steel industry leader United States Steel Corporation (NYSE:X) (U.S. Steel) (Pittsburgh, Pennsylvania) took a big hit in first-quarter 2012 from a $399 million after-tax loss on the company's sale of U.S. Steel Serbia, which overshadowed solid income gains in the company's other major segments and businesses. The quarter saw a net loss of $219 million, much of which was attributed to the Serbian sale, compared with a net loss of $86 million in first-quarter 2011.

Total net sales stood at $5.17 billion for the quarter, a 6.33% increase from the same period last year. Setting aside the massive loss from U.S. Steel Serbia, most of the major company news was positive, with income from the major segments and other businesses totaling $295 million, compared with $4 million in first-quarter 2011. The gains were driven by the Flat-rolled segment, which reported stronger average realized prices and 4.1 million net tons of shipments, which is its highest level of shipments since third-quarter 2008. Continued growth in oil-directed drilling boosted the Tubular segment, with demand strengthening for oil country tubular goods and line pipe. U.S. Steel also saw a foreign currency gain that boosted net income by $81 million.

Industrial Info is tracking more than $2.89 billion in active U.S. Steel projects, including $500 million in battery replacements and environmental upgrades at a coke plant in Clairton, Pennsylvania. The project involves replacing three battery units at the 4.7 million-ton-per-year coke plant to meet all regulatory requirements from the U.S. Environmental Protection Agency and the Allegheny County Health Department by the end of the year, as well as adding a quenching system. U.S. Steel also is working on a $300 million expansion of its 1.2 million-ton-per-year Pro-Tec steel coating plant in Leipsic, Ohio, that will add an additional 400,000 tons per year to the galvannealing-annealing line in support of cold-rolled, high-strength, low-weight steel.

"Our improved operating levels throughout the first quarter reflect favorable conditions in most market segments," said John Surma, the chairman and chief executive officer of U.S. Steel, in a conference call. "Demand from the automotive, industrial equipment, agricultural, and pipe and tube markets was good in the first quarter, yet remained volatile during the quarter in the service center and converter markets. Mild winter weather positively impacted the construction segment in the first quarter; however, overall demand in the U.S. construction market remains relatively weak."

The European segment was the only one to report a decline in operating results or average price per ton:

• The Flat-rolled segment reported income from operations of $183 million, compared with a loss of $36 million in first-quarter 2011, and an average price per realized ton of $764, a 6.11% increase from the same period last year.
• The U.S. Steel Europe segment reported a loss from operations of $34 million, compared with a loss of $5 million in first-quarter 2011, and an average price per realized ton of $749, an 8.99% decrease from the same period last year.
• The Tubular segment reported income from operations of $129 million, compared with a gain of $32 million in first-quarter 2011, and an average price per realized ton of $1,727, a 19.35% increase.
• All other U.S. Steel businesses reported total income from operations of $17 million, a 30.77% increase from the same period last year.

U.S. Steel executives expect all three major segments to post positive operational results in second-quarter 2012, with improved prices putting the U.S. Steel Europe segment back in the black. The Flat-rolled segment is expected to see lower results due to an increase in maintenance costs of about $50 million from the first quarter, although all other operating costs are expected to stay roughly the same. Full-year capital spending is expected to hit about $900 million; the first quarter saw $189 million.

"While the economic conditions in Europe remain challenging, second-quarter results in our European segment should improve when compared to the first quarter," said Gretchen Haggerty, the executive vice president and chief financial officer for U.S. Steel, in the conference call. "Average realized prices are expected to improve as higher spot market prices carry over into the second quarter and quarterly contract prices increase."

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