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.
Source: The Wall Street Journal
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