AK Steel, US Steel Report Softer Quarter

Both AK Steel and US Steel reported a downturn in their quarter numbers. Despite the decline, CEOs of both companies expect to see stronger markets for the fourth quarter.

AK Steel reported a third quarter net loss of $29. The results included $29.5 million in costs for scheduled maintenance outages conducted at the company's Middletown, Ohio, and Ashland, Ky., facilities.

The company's third quarter results were hurt by a significant cost increase for natural gas, primarily the result of gas production disruptions due to the hurricanes this fall. Also affecting the quarter results were increased costs for steel scrap and other raw material inputs.

Net sales for the quarter were $1.393 billion on record quarterly shipments of 1.687 million tons, or about 4 percent and 9 percent higher, respectively, than sales of $1.337 billion on shipments of 1,541,41,800 tons in the year-ago period. The company's average selling price was $825 per ton in the third quarter of 2005, down from $866 per ton in the third quarter of 2004, due primarily to higher hot-rolled shipments and lower spot market prices. AK Steel reported an operating loss of $25.5 million, or $15 per ton, in the third quarter of 2005, compared to operating income $94.5 million, or $61 per ton, in the third quarter of 2004.

"AK Steel continued to perform well in all the operating and quality measures within our control," said James Wainscott, president and CEO. "Clearly, however, the significant cost increases outside our control, especially the meteoric rise in natural gas following back-to-back hurricanes, more than erased the solid progress on our other cost reduction efforts. Nonetheless, we continue to see fundamental strength for our key product lines in the fourth quarter, and we anticipate lower maintenance costs."

AK Steel said it expects to record an operating profit in the fourth quarter of 2005 between $18 and $20 per ton shipped, excluding certain non- cash charges which will likely result in the company reporting an operating loss for the fourth quarter of 2005.

The company said it expects to realize higher steel prices on lower shipments of about 1.625 million tons in the fourth quarter, with continued spot market pricing improvements during the fourth quarter. The company said that it expects its product mix will reflect a somewhat higher percentage of value-added products in the fourth quarter compared to the third quarter. AK Steel said it expects costs for planned maintenance outages to be approximately $25 million lower for the fourth quarter compared to the third quarter of 2005, the result of fewer planned outages. AK Steel said it expects to continue to be impacted by higher energy and raw material costs, as the natural gas production-related effects of Hurricanes Katrina and Rita linger.

United States Steel Corp. reported third quarter 2005 net income of $107 million, compared to second quarter net income of $245 million and third quarter 2004 net income of $354 million.

John Surma, U. S. Steel’s president and CEO, said, "Our Flat-rolled and European segments remained profitable despite lower spot market prices and reduced operating rates. Our largest domestic blast furnace and our largest European blast furnace were both down for the entire quarter for major rebuilds. In addition, after standing idle for 18 years, our No. 1 blast furnace in Serbia took time to ramp up to full production following a rebuild completed in June. In contrast, our Tubular segment had another outstanding quarter as demand and prices remained strong."

The company reported third quarter 2005 income from operations of $159 million, compared with income from operations of $413 million in the second quarter of 2005 and $494 million in the third quarter of 2004.

Other items not allocated to segments reduced third quarter 2005 net income by $4 million and second quarter 2005 net income by $3 million. Third quarter 2004 net income was increased by $21 million, primarily resulting from a $24 million favorable effect related to the settlements of prior years' income tax audits.

Commenting on U. S. Steel's outlook, Surma said, "With continuing reductions in service center inventory levels and firming spot prices, we expect fourth quarter market conditions to show improvement over the third, but results will remain well below those of the first two quarters of the year. Our order book remains strong across all industries, but we will continue to be affected by high natural gas prices and by reduced domestic raw steel capability for the duration of the Gary blast furnace rebuild."