The Stel
Salaried Pensioners Organization wishes to thank The Hamilton Spectator for
permission to post the following article by Reporter Steve Arnold published in
the June 2, 2005 edition
By
Steve Arnold
The Hamilton Spectator
(Jun 2, 2005)
Stelco is abandoning its hopes for stellar profits this year.
The struggling steel maker says sagging prices, high inventories
and rising raw material costs mean its projection of $400 million in 2005
profit won't happen and profits for the second quarter will be
"considerably lower" than the $49 million reported in May.
While it wouldn't issue a new projection, Stelco's chief financial
officer did say its performance for the year will still be solid.
The warning, coming just as the company and its combative
stakeholders are locked in mediation in an effort to work out a restructuring
plan, also sent Stelco shares down nearly 8 per cent to $1.40 on the Toronto
Stock Exchange.
It also raises difficult questions about the company's chances of
returning to financial health after it leaves the shelter of court-supervised
bankruptcy protection.
"Stelco definitely has to address some of its cost issues
now," said analyst Jarrett Bilous, of Dominion Bond Rating Service.
Bill Vaughan, Stelco's chief financial officer, said while profits
will be down, steel prices remain high by historical standards and that should
mean a good bottom line for the second quarter and fiscal year. "We're
still expecting solid performance, a decent quarter," he said in an
interview. "It's certainly not a doom and gloom outlook."
Vaughan said Stelco is being especially hard hit by rising prices
for natural gas and electricity, as well as sagging demand in manufacturing,
construction and auto assembly.
"The problem is being largely driven by high customer
inventories," he said. "I'm sure there's some impact by imports, but
it's mainly a demand driven outlook."
For the first three months of the year, Stelco reported $49
million in profit -- the highest quarterly earnings in its history. The number
would have been $21 million higher but for the costs of the army of lawyers,
accountants and other advisors working on its restructuring plan. For all of
2004 it reported profits of $65 million.
Vaughan said a new profit target may be issued later. "If
things get a little clearer, we may choose to provide an update at that time.
But, at this time, there's just too many moving pieces," he said.
Steel prices have dropped about 35 per cent since last September's
historic highs. Some grades have now fallen below $540 US per ton, with much of
the drop in the last month. Stelco's current creditor protection expires July 8
and it has said it expects to ask for an extension to September.
When Stelco applied for protection in January 2004 it said high
costs of production, including pension deficit payment costs, were hobbling
efforts to compete. Soaring prices last year turned its losses into profits,
but a plan to solve the cost of production problems is still being developed.
sarnold@thespec.com
905-526-3496