Steel Mills

Olympic Steel CEO Thinks Prices May Go Lower

November 8, 2015

Olympic Steel reported a net loss of $600,000 for third quarter but managed to expand gross margin 21.2 percent, compared to Q3 2104, despite pressure on pricing and volume. Olympic lowered operating expenses by almost $20 million so far in 2015 as well as lowering debt by a total of $60 million.

Sales volume decreased in all segments. The carbon flat products segment volume declined by 16.7 percent year over year to 254,000 tons and specialty metals declined 8 percent to 1,600 tons. Pipe and tube shipments also fell during the quarter.

Average prices on a consolidated basis declined 13 percent resulting in a net sales decrease of 26.5 percent year over year to $277 million. Average pricing for carbon flat products and specialty metals dropped 17 percent and 11 percent y/y, respectively.

Summarizing the status of the U.S. steel market, CEO Michael Siegal said, “Pricing for the steel-making input, such as scrap metal, iron ore, coking coal and energy have all deteriorated further in the third quarter and now into the fourth quarter. There has been little reduction in the record high levels of steel imports, regardless of trade action, pouring into the United States, most of which is being subsidized by foreign governments. The U.S. dollar remains very strong in relation to other currencies. And to top it off, in the third quarter industry-wide demand weakened in a number of end markets, including industrial equipment, mining, energy, and agriculture. None of these factors are within our control, and all have contributed to consistently deteriorating metal prices and decreasing demand for steel.”

Lead times have been short, said Siegal, “nobody’s buying anything more than they need, again, typical three weeks, in some cases one to two days.”

Market pricing is down and Siegal said it may go lower, “it’s a factor of supply and demand.” Although first quarter demand usually improves, issues with imports and a strong dollar are factors that could impact, he said.

When asked if he thought the trade cases on coated, cold rolled and hot rolled will have a significant impact on pricing and demand, Siegal answered, “My mother used to tell me, God helps those who help themselves. Okay? I’m going to stick with that.”

Regarding the energy industry, Siegal said, “Listening to our politicians talk about the elimination of fossil fuels and what that means to the energy sector gives us pause….I think we have a government that’s worked against basic industries. An activist EPA hurts the long-term interests of steel.”