US Steel Navigating 'Challenging Times': CEO

Executives at the Pittsburgh-based steelmaker also confirmed, as SMU has previously reported, that maintenance on a blast furnace at its Mon Valley Works in western Pennsylvania has been pulled forward from October to September.

They made the comments during a conference call with equity analysts on Friday, July 29, following the release of the company’s second quarter earnings report.

As for the third quarter, lower flat-rolled steel prices throughout much of the second quarter and into the third kept some buyers on the sidelines. That trend is expected to result in lower earnings before interest, taxes, depreciation and amortization (edbitda) from U.S. Steel’s flat-rolled segment in the third quarter, chief financial officer Christine Breves said.

A Pig Headache

The company’s Big River Steel division and its mill in Kosice, Slovakia, are also anticipated to be less profitable because of margin squeezes stemming from the war in Ukraine, she said.

Namely, pig iron prices hit nearly $1,000 per ton delivered to New Orleans earlier this year when Russian and Ukrainian supplies were cut off because of the war, said Rich Fruehauf, US Steel’s chief strategy and sustainability officer.

Russia and Ukraine had accounted for approximately two-thirds of global pig iron supplies. US Steel shifted its sourcing of pig iron and hot-briquetted iron (HBI) to Brazil and India to ensure it had enough raw material. It achieved that goal.

The problem is, Big River now has “elevated” pig iron and HBI stocks that are “obviously … high cost.” Said Fruehauf: “We’re going to have some compression on price there with the mini mill business and have to manage that very closely.”

It was a similar story in Slovakia, which borders Ukraine. US Steel usually carries 30 days of inventory at Kosice and aimed to increase stocks to 60 days because of heightened geopolitical risk.

“We’re currently a little bit higher than that,” Burritt said.

Meanwhile, steel prices in Europe, where demand is softer, have fallen more than raw materials prices. “And that is quite the squeeze,” he said.

The Chip Shortage Endures

The automotive sector accounts for approximately 30-35% of US Steel’s sales. And the company remains confident that it will benefit from an “inevitable” ramp up in automotive production, Burritt said.

But the chip shortage, a posterchild for supply chain problems in general, remains a “big bottleneck” in the meantime. “Alleviating the semiconductor bottleneck is critically important. And it’s taken longer, I think, than anybody imagined. And it’s still going to take longer,” he said.

The appliance market, which accounts for 10% of sales, is also grappling with persistent supply chain issues, Burritt noted.

On the service center front, US Steel is seeing “cautious buying” despite what the company assesses to be solid demand. “You have more shipments and less buys, meaning they’ll have to start buying soon,” said Kevin Lewis, vice president of investor relations.

One bright spot has been energy tubulars such as line pipe and oil country tubular goods (OCTG). Company executives said that tubular segment should perform even better in the third quarter than it did in the second – but also noted that a strong showing from tubular depended in part on continued support from trade cases.

And demand is not so strong that the company plans to restart idled welded tubular facilities. “It would be far too soon to suggest anything like that,” Burritt said.

DRI Is Coming, But Not Yet

US Steel has decided to locate DR-grade pellet facilities at its Keetac facilities in Keewatin, Minn. That will allow the mining and pelletizing operation to make feedstock for DRI and HBI modules as well as for blast furnaces.

DRI/HBI is a future opportunity for US Steel. And the steelmaker has been contacted by other companies seeking to partner with it on those metallics. But don’t count on anything big happening soon.

“Right now, there’s nothing in the capex related to DRI, even though that wouldn’t necessarily be a huge number,” Burritt said.

US Steel’s near-term focus will be on its partnership with SunCoke Energy to make pig iron at its Granite City Works in southern Illinois, Fruehauf said, who noted that pig iron trades at a premium to DRI and HBI for a reason.

“It gives off heat in the (EAF).” Fruehauf said. “You speed up the tap-to-tap times. So having pig iron, whether it’s a Gary or at Granite City is a huge win.”

US Steel is also building a pig iron caster at its Gary Works in northwest Indiana. That caster will make standard “lumpy” pig iron. Granite City will make “granulated” pig iron, which is smaller and distributes more evenly in an EAF, he said.

By Michael Cowden, Michael@SteelMarketUpdate.com