USS Speaks About EAF’s, DRI and their Canadian Operations

The US Steel Earnings conference call was held on Wednesday, July 30, 2014 and gave an insight into the strategy of US Steel. The following are excerpts of the comments made by CEO Mario Longhi and CFO, David Burritt.

Executive Vice President and CFO, Dave Burritt began the call with an update on US Steel’s Carnegie Way transformation. The Carnegie Way benefits now total $435 million, primarily due to improvements in manufacturing processes, supply chain and logistics and further SG&A reductions. The strategy has two phases, said Burritt. Phase 1 is earning the right to grow and Phase 2 is about driving profitable growth.

“We’ve already made some significant improvements to many of our businesses and we have made the difficult decision to exit a couple that we could not fix,” said Burritt. “We still have difficult problems to solve in many areas and we are committed to finding the appropriate solutions to these problems on a timely basis. We need to be ready to capture and create value for all of our stakeholders when the opportunity arises.”

When asked what US Steel might do with its Carnegie benefits and free cash flow, Longhi said the company focused on liquidity and cash on hand to prepare for opportunities that might come along as well as to take care of maturing debt. EAFs are also something under consideration.

“We were beginning to conceive the fact that EAFs were going to have a role to play as we move out into a more flexible environment into the future,” said Longhi. DRI is also an opportunity that is being evaluated as not only a raw material for an EAF, but as a new product for US Steel. The company is also planning significant investment in innovation to develop new products and new solutions for customer needs.

On the subject of the OCTG decision, CEO Mario Longhi approved of the Department of Commerce decision to place anti-dumping margins on OCTG Korean imports.

“Although we view the final DOC determination as positive, OCTG supply, particularly commodity grade ERW will likely remain abundant into the third quarter as the market is well supplied with inventory, foreign offerings and additional domestic capacity,” said Longhi. “However, increased demand for premium products could allow for some upward price movement.”

When asked about the possibility of new trade cases, Longhi responded: “You can’t just look at imports and consider them, because they are of a certain magnitude that you are going to bring a trade case. There’s a lot of work in these two putting in place to get factual around how those trades are occurring, is there really a dumping situation that you can validate? And it takes quite a bit of time to do that. So this is one of the things that when it comes to international trade that’s critical. The big change that potentially will occur in the future is that the definition of harm eventually will have to be adjusted to reflect the realities of how the modern world is playing. Especially the ones that don’t want to live under the rule of law. So trade cases are going to be brought about. We are vigilant. Every time that we can validate something which does take time and effort, we’re going to be prepared to do it.”

The US Steel executives were asked to comment on any threats to the European operations in relation to raw materials and energy supply due to the fighting in the Ukraine.

Longhi replied that so far US Steel “has not been impacted in any meaningful way” but the company has been putting together backup and alternate plans to mitigate any risks coming from sanctions. Natural gas, he said, is “probably the weakest link because Europe doesn’t have an alternative for it.”

An analyst on the call asked if US Steel was trying to distance itself from its Canadian operations through its recent 8-K filings that amend some its receivable purchase agreements.

“The filing that you saw basically is geared up to continue to give us the additional levels of flexibility that, in this kind of business we are in, is necessary. And we have been looking at every angle of our business. And Canada certainly is one that is challenging and we are still working on it. And we are going to keep working on it. No decisions have been made on anything yet over there.” When asked if the Canadian operations are generating profit or loss, Longhi said, “Unfortunately, it is not generating profit.”