By John W. Miller
PITTSBURGH--After a robust year, highlighted by U.S. Steel
Corp.'s first annual profit since 2008, the steel industry is
facing an unexpected menace in tumbling oil prices, which have
forced production cutbacks and even pressured prices for automotive
steel.
At the heart of the problem is a build-up since last decade to
supply oil and gas drillers. Like many others, steelmakers saw the
U.S. energy boom as their salvation. But with oil prices down more
than 50% since last summer, energy companies have cut spending on
projects requiring steel, and swiftly canceled orders with steel
mills.
"There's been an abrupt change in the near-term outlook in
recent weeks, " John Ferriola, chief executive of Charlotte,
N.C.-based Nucor Corp., the country's biggest steelmaker, said on a
conference call Tuesday.
Although Nucor's fourth-quarter profit rose 23% from a year
earlier to $210 million, the company warned that "market conditions
in the steel mills segment in the first quarter of 2015 will be
impacted by challenges in energy markets due to customer inventory
reductions."
Mr. Ferriola said "irrationally price imports" at "ridiculous
levels" were also to blame for falling prices.
Imports of steel into the U.S. jumped 34% to 41.5 million tons
during the first 11 months of 2014, the latest months for which
data is available, and have continued to rise despite the
imposition of new import tariffs last summer, raising the chances
of further trade action. "We'll be aggressive" in pursuing new
tariffs, said Mr. Ferriola.
The biggest blood-letting has been at U.S. Steel. On Monday, the
company said it would curtail operations at two plants in Alabama
and one Texas, potentially affecting more than 1,900 workers.
Earlier this month, it announced temporary shutdowns at two plants,
impacting 756 workers.
News of the shutdowns cast a pall over a remarkable comeback for
the 114-year-old steelmaker. Since taking over in 2013, U.S. Steel
Chief Executive Mario Longhi has aggressively cut costs and
restructured operations. His turnaround plan generated $575 million
in cost savings and increased profit in 2014, the company said. In
addition, U.S. Steel benefited from the resurgent U.S. auto
industry, and high energy prices.
On Tuesday, after five straight years of losses, U.S. Steel
posted a profit of $102 million, or 69 cents a share, for 2014,
compared with a loss of $1.65 billion, or $11.37 a share, in
2013.
Like his counterpart at Nucor, Mr. Longhi warned of darker days
ahead. "We face significant challenges from dramatically lower oil
prices, lower steel prices, and the impact of the stronger U.S.
dollar and global overcapacity on imports and our operations," he
said in a statement.
"Drilling activity has been severely cut back," said Tom Conway,
a vice president with United Steelworkers, which represents workers
at U.S. Steel. "And unfairly priced and subsidized imports continue
to land in the U.S. market, just compounding the situation."
Gas driller Antero Resources Corp. of Denver last week said it
would cut capital spending by 41% this year to $1.8 billion. It now
plans to operate an average of 14 drilling rigs in 2015 in the two
main shale-gas drilling regions, Marcellus and Utica, down from 21
at the end of 2014. "We will continue to monitor commodity prices
throughout the year and may revise the capital budget lower if
conditions warrant," said Antero CEO Paul Rady.
The fall in oil prices threatens to decimate a steel industry
that has expanded over the last few years to supply drilling in
places like the Marcellus Shale, which is centered in Pennsylvania
and West Virginia, and the Gulf of Mexico. And the pain is
spreading to some of the industry's other markets. The same rolls
of steel coil used to make large pipes are also used to make
different car parts.
The benchmark price for hot-rolled coil is now at $554 per ton,
down 14% from a quarter ago, around when oil prices took a
dive.
Ontario-based Samuel, Son & Co., which processes steel slabs
for companies that supply General Motors Co. and others, said the
market is suddenly awash with extra steel. Lead times have
shortened up to three or four weeks from 12 to 14 weeks last year,
according to purchasing manager Murray Duncan.
"It feels like every hour you're seeing things crumble," said
Tom Calhoun, founder of Chicago-based Calhoun Steel, a steel
distributor. "Everybody is discounting, and the hard part is when
you think you've hit bottom at $600 a ton, and it keeps going
down."
Car makers and other manufacturers who buy steel, he added, "are
doing OK right now."
Write to John W. Miller at john.miller@wsj.com
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