US Steel: “We Have Probably Seen Bottom”

US Steel began first quarter under challenging conditions but results were in line with expectations. The flat rolled segment posted a $188 million EBIT loss due to decreases in average realized prices in the contract business and lower average spot prices. Flat rolled shipments totaled 2,498,000 tons. Additionally, seasonally lower results from US Steel’s mining operations and a $50 million loss from LIFO inventory reduction contributed to lower results in the first quarter.

The tubular segment posted a $64 million loss due to lower prices and shipments attributed to the decline of drilling activity and increasing import levels. The loss was somewhat offset by lower substrate, spending and operating costs. Tubular shipments for Q1 were 89,000 tons compared to 220,000 tons in Q1 2016.

US Steel Europe posted a loss of $14 million.

At the shareholders meeting Longhi acknowledged that the company was willing to sell off the tubular steel segment although nothing was currently pending.

“We will look at everything without any restriction,” he said. “We’re always open, and conversations take place on a regular basis. So this is not something new. If there’s an opportunity that enhances shareholder value, then we’ll certainly pursue it.”

Longhi said the company is encouraged that efforts to improve trade laws and their enforcement are beginning to be realized in preliminary trade rulings.

At the shareholders meeting, he noted that after years of dumping steel on foreign markets, the Chinese steel industry is beginning to struggle.

“For the first time, you’re seeing all the Chinese steel makers lose money…and a lot of it,” said Longhi. “From what they’ve been doing to us, they’re now beginning to do to themselves.”

In the 2016 outlook remarks, US Steel said, “If market conditions, which include spot prices, customer demand, import volumes, supply chain inventories, rig counts and energy prices, remain at their current levels, we would expect 2016 adjusted EBITDA to be near $400 million.”

The flat-rolled segment is expected to improve from 2015, the European segment will be flat and the tubular segment below 2015 results.

US Steel holds its first quarter 2016 earnings conference call at 8:30 a.m. on Wednesday. SMU will have more to report following the call.