U.S. Steel's 1Q loss of $73M improved from a year ago

| Tuesday, April 30, 2013, 9:15 a.m.

U.S. Steel Corp. CEO John Surma identified cost cutting and plans to boost its profitable tubular division as ways the steelmaker can improve performance after reporting a first-quarter loss on Tuesday.

Surma said the company will expand a seamless tubing hot mill at its Lorain, Ohio,Works to increase capacity and produce large-diameter pipe. And it reached an agreement with a Republic Steel plant in Lorain that would supply steel bars to U.S. Steel's tube plant faster and cheaper than its current suppliers.

Surma told shareholders at the company's annual meeting at its headquarters Downtown that the expansion is part of “our strategic objective to increase our premium tubular products capabilities” and supply natural gas producers in Marcellus and Utica shale and other regions with drilling pipe.

The projects in Lorain depend on the startup of a new electric furnace Republic is building.

The Pittsburgh steel company also placed Chief Operating Officer Mario Longhi in charge of teams that will assess billions of dollars in annual operating costs and to find savings in purchasing, logistics, maintenance, quality and other functions.

“The goal is to attack these costs in a very focused and thoughtful way in order to achieve significant, sustainable cost savings, and to complete this assessment with the sense of urgency,” Surma said.

A target was not disclosed, but even modest savings could have a significant impact, he said. As prices for steel products continue to fall, “We want to drive our break-even cost down.”

In that context, U.S. Steel is looking closely at a range of possible investments in natural gas production and supply, because it is one of the nation's largest users, Surma said during a conference call with analysts.

Surma also said a competitive labor agreement is needed at U.S. Steel's Lake Erie Works in Naticoke, Ontario, where the company locked out nearly 1,000 members of the United Steelworkers union on Sunday after they rejected a final contract offer.

“Our Canadian facilities are comparatively high-cost operations, and we need a labor agreement ... that reflects the position of this facility in a very, very competitive flat-rolled steel market,” Surma said.

The plant is shut down, but the company intends to maintain sales, he said. “We have inventory in position to make sure customers can be taken care of. ... We expect to serve our Canadian customers without missing a beat.”

He estimated the cost of maintaining the plant at $45 million to $50 million a quarter, including depreciation expense.

U.S. Steel reported a first-quarter loss of $73 million, blaming weak global economic conditions and intense competition.

“Our results have remained below levels that history tells us are achievable for both our company and our industry,” Surma said.

Results were slightly worse than the fourth-quarter of 2012, and an improvement from the same period a year ago, the company said. The steelmaker reported a $50 million loss for the October-December quarter, well above a $219 million loss a year ago. That quarter included a $399 million loss from the sale of a plant in Serbia.

Sales for the quarter were $4.6 billion, down from $5.3 billion a year ago. On a per share basis, U.S. Steel's results showed a loss of 51 cents compared to $1.52 a year ago.

Surma said the company expects operating results in the second quarter to be near break-even. U.S. Steel stock closed at $17.80, up 26 cents.

John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or joravecz@tribweb.com.

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