Profit scenarios at U.S. mills - Good times over?

Profit scenarios at U.S. mills - Good times over?

Two days ago California Steel Industries Inc. reported a disappointing financial result for the Third Quarter 2005 ending September 30. Net Sales dropped by 26 percent compared to the third quarter last year and average sales prices dropped by 11 percent. Compared to the second quarter 2005 net sales dropped 6 percent and prices declined 13 percent. The third quarter 2005 ended with a net loss of $1.1 million. Furthermore, US Steel Corp. and AK Steel Holdings issued profit warnings a few weeks ago indicating that their third quarter will be below expectations. So, is everything falling apart and the good times are over? No, not really. The third quarter last year was an extremely strong one and everyone knew that it would be hard to duplicate that performance. Also, California Steel buys their slabs from outside sources. Slabs did not follow the same price trend as the flat rolled products and only recently have the slab prices started to fall in line with the general trend. Coupled with the increased energy costs, one can understand how California Steel's slab consumption cost went up by 16 percent compared to Q3 2004. The silver lining out of California Steel is that their tons shipped in the Third Quarter 2005 have increased over the previous quarter. Again, the volume is behind 2004 but nobody expected to remain on the blistering pace of last year. Fourth Quarter 2005 should reflect lower slab prices and cheaper energy costs. With the economy moving along, California Steel will show a profit again. The other harbinger of better times is Nucor Corp. Their Third Quarter 2005 shows a lower profit and average sales price as well (down 30 percent and 15 percent, respectively, compared to the same period last year), but they show a solid net income of $291.9 mill for Q3. This has topped Wall Street analyst’s expectations. So it seems the "Good Times" of 2004 have been replaced by the "Solid Market” for most of 2005. The US steel industry will weather scrap and energy fluctuations to show an overall "solid" year by the end of 2005.