The Stel Salaried
Pensioners Organization wishes to thank The Hamilton Spectator for permission
to post the following article by Reporter Meredith Macleod published in the
April 12, 2005 edition
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Apr. 12, 2005. 01:03 AM |
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Stelco results disappoint |
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By Meredith Macleod |
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Stelco has some "breathing room" while steel prices remain high but the company had better aggressively get ready for when they fall, says a Toronto business professor. Steel experts continue to argue over whether steel prices will soar or crash this year. But one thing they agree on is prices were at record levels last year and still Stelco didn't make much money. "These results are quite disappointing actually," said Joseph D'Cruz, a professor at the University of Toronto's Rotman School of Business. "All over the world, steel companies are making a lot of money. I would have expected better results out of Stelco." Yesterday, Stelco - now in its fifteenth month of bankruptcy protection - announced fourth quarter profits of just $1 million after write-offs. It made an $18-million write-off of property, plant and equipment at subsidiaries Stelwire and Stelpipe and a $10-million future income tax allowance. Profits fell far short of projections the company made last month. According to preliminary unaudited figures, Stelco expected to post operating profits of $45 million to $50 million for the three months ended Dec. 31. The results put full 2004 operating earnings between $223 million and $228 million - or $313 million in 2003. CEO Courtney Pratt said the 2004 results were hurt by repair and maintenance costs and higher prices for raw materials such as coke, coal and scrap. D'Cruz said the results may make it difficult for Stelco to raise the capital it's seeking to restructure operations. "People will wonder whether they've got their operations under control and if they've made the cuts needed to make it viable." The steel industry is heavily cyclical. That means profits have to be maximized in good times to weather the bad times. It seems Stelco hasn't been able to do that, said D'Cruz. Stelco projected an operating profit of $350 million to $400 million for 2005. That's a big climb from what was achieved in 2004, he said. "There are huge challenges ahead. They can't control prices but they can control operating costs and they're obviously not under control." World steel prices have dropped about 16 per cent since a September peak. Some observers say that slide will continue because auto production is down and global inventories are high. In its April report, industry research firm World Steel Dynamics says there is a 90 per cent chance that hot-rolled steel prices will drop in the second quarter of 2005 to about $450 per tonne from current prices of about $575. But they don't believe prices will head into a "death spiral" because China -- the driving force behind soaring prices last year -- won't ramp up production any further and other global steelmakers have cut back due to climbing costs for raw materials. World Steel Dynamics also projects global steel demand will remain strong. Local steelmakers are somewhat insulated from price fluctuations. Stelco has signed contracts for about half its production at prices about 30 per cent higher than in 2004. Dofasco sells about two-thirds of its steel on contracts. Heavy demand from China is not going to change, says Luke Chan, associate vice-president of McMaster's Office of International Affairs. China's unprecedented growth shows no signs of decline, he says. And India is not far behind. It, too, is increasingly hungry for steel to fuel its burgeoning economy, says Chan. mmacleod@thespec.com 905-526-3408 |