United States Steel (USS) anticipates an adjusted EBITDA loss of about $315mn in Q2 2020, not including about $100mn approximated for reorganizing or added costs.
The company also expects an adjusted net loss attributable to USS of $521mn in the second quarter. This guidance extends below prior projections of a Q2 2020 loss and follows previous comments by USS that warned of sizeable declines compared to a more equitable EBITDA recorded in Q1 2020.
The steelmaker’s second quarter has been extensively impacted by COVID-19 and the expected nonrecurring charges related to large volumes of steelmaking operations being idled during the quarter, USS noted in its Q2 guidance released on Wednesday.
Timely reaction to the expected demand drop at the end of Q1 helped the company conserve cash though production loss from the shutdowns were not fully offset.
David B. Burritt, president and chief executive officer at USS said the company took immediate actions following original equipment manufacturing (OEM) closures and dropping consumer demand.
However, the company remains confident of a turnaround as OEMs resume and demand returns to the market. As a result, the steelmaker has continued to pinpoint further management plans and operating developments to retain strength and recover cash usage in 2020.
The company has taken meaningful steps during the quarter to develop its integrated and mini-mill steel strategy Burritt said, adding that USS is gaining benefit from its iron ore assets following agreements that will provide enhanced earnings and cash moving forward.
The steelmaker completed activities to accomplish $200mn in fixed cost savings, ahead of its initial 2022 aim, and is assessing options for its West Coast USS-POSCO Industries (UPI) business and associated property. Burritt concluded that Big River Steel remains a top priority and the company believes it will considerably advance from the predicament.
The USS flat-rolled business could see drastically lowered results in Q2 compared to the previous quarter due to COVID-19 and its negative effects on market activity, mainly in the automotive and energy industry. Customer activity in Q2 2020 might reach its bottom for this year, now that demand has started to recover in June.
Industry activity in Europe was limited during most of Q2 as the market, mostly the auto sector, is slowly recovering from economic shutdowns brought on by the pandemic. Also, low demand has negatively impacted performance in the sector.
The steelmaker advanced its 10-day hot strip mill outage to late May due to the slow economic upturn in Europe. The maintenance was initially planned for Q3 2020. USS also paused its No.1 blast furnace in late May to line up melt with its planned hot strip mill shutdown, both of which have been restarted.
In the Tubular segment, industry circumstances continue with challenges such as decreasing rig counts and oil prices lingering below historical levels. Consequently, demand for seamless pipe and welded has dropped considerably.
As part of cost cutting initiatives USS idled its Lone Star facility in Texas and its Lorain facility in Ohio until further notice, then merged tubular production to its Fairfield seamless plant in Alabama. Further cost savings are expected by USS’s plan to source the manufacture of round products through its new 1.6mn mt annual capacity electric arc furnace, near Birmingham, which will start production in H2 2020.