The Stel Salaried
Pensioners Organization wishes to thank The Hamilton Spectator for permission
to post the following article by Reporter Naomi Powell published in the August
5, 2005 edition
By Naomi
Powell
The Hamilton Spectator
(Aug 5, 2005)
Stelco's earnings took a major plunge
in the second quarter, leaving the company to depend on asset sales to buoy its
bottom line.
In results released yesterday, the
company reported profits of $40 million compared to $42 million in the same
period last year.
Boosting those earnings, however, were
a variety of one-time gains: $20 million on the sale of the steelmaker's plate
mill assets, $14 million from an insurance claim related to a blast furnace outage,
$4 million on the sale of Welland Pipe's equipment and a $4-million gain on the
sale of the company's interest in Camrose Pipe.
Subtract all of those one-time gains,
add restructuring costs of $13 million for the quarter, and Stelco barely broke
even. And the company doesn't expect things to improve until the fourth quarter
of 2005.
"We do believe our third quarter
results will be significantly lower than the second quarter and we will be
drawing on our credit," said Stelco's president and CEO Courtney Pratt,
who would not say how much credit the company intends to draw.
Stelco shares closed at 84 cents
yesterday, down three cents on the day.
University of Toronto business
professor Peter Warrian said the results are a dire warning for the company and
its stubborn stakeholders.
"Other than the one-time items,
this is a company barely in the black," he said.
"They're vulnerable. They're all
(Stelco's stakeholders) a notch closer to the edge. We will all look back at
this last year as a tremendous waste of opportunity. The breathing space that
high prices gave Stelco is almost out of oxygen."
In the midst of its rocky restructuring
process, the steelmaker has had to struggle against the same perfect storm of
problems as every other steelmaker in the country. Stelco's problems include
higher raw material costs, significantly lower steel prices and lower
shipments.
The steelmaker recorded costs of $799
million, up from $779 million during the same period in 2004 which it
attributed to the rising cost of iron ore, coal and scrap metal.
Analysts have blamed raw material costs
on rapidly increasing Chinese demand for iron ore, coal and other steelmaking
materials.
China consumed nearly 300 million
tonnes of steel last year and was the world's largest importer of the alloy,
driving prices up to nearly $750 per tonne of hot rolled steel. But China has
since ramped up its domestic production and while it is still consuming mass
quantities of the raw materials that Stelco also depends on, the price for hot
rolled steel has plummeted to as low as $400 per tonne.
Since April, Pratt said, the price of a
hot roll, Stelco's largest product category, had fallen 26 per cent.
"Pricing has been incredibly
volatile and this is a volatile industry to start with," Pratt said.
"But I don't think anybody's seen anything like this."
The company noted some bright spots on
the horizon. With seasonal automotive shutdowns nearly complete, the steelmaker
expects orders from key clients like Ford and DaimlerChrysler to pick up. And
aggressive pricing by the Big Three automakers is expected to lower their
inventories of vehicles sparking an increase in production later in the year.
Service centres -- middlemen who purchase steel to resell to smaller customers
-- are also starting to work off unusually high inventories.
But the threat hanging over Stelco's
emergence from 18 months of restructuring is a potential strike by its Lake
Erie workers. The union issued a 90-day strike notice last week, a move Pratt
claims is barred by a 2004 court order.
Peter Leibovitch, vice-president of the
United Steelworkers Local at the Lake Erie plant has insisted the union does
have the right to strike and will do so if the company refuses to negotiate its
restructuring plan.
Lake Erie works is one of Stelco's most
profitable operations and a shutdown could threaten its ability to raise the
money to pay its debts and emerge from bankruptcy protection.
"We have a 90-day countdown to a
strike here and we're serious about it," said Leibovitch. "The only
guarantee of no strike is a deal."
Union leaders are particularly
concerned about how the plan proposes to deal with the company's $1.3-billion
pension deficit. The company has proposed a down payment of up to $200 million
on the debt with the rest paid out over 10 years. The union is pushing a plan
backed by Tricap Management which proposes a $500-million down payment on the
deficit with the rest paid out over six years. The company and its bondholders
have rejected that deal.
Pratt said the company still intends to
submit a final restructuring plan to the court by Sept. 9, the day its
bankruptcy protection expires.
npowell@thespec.com
905-526-4620