US Steel (USS) expects another net loss in Q2, and will accordingly prioritize cash preservation and liquidity as it weathers unprecedented market upheaval.
USS president and chief executive officer David B. Burritt noted that market activity had begun improving in the early half of Q1, prior to COVID-19 becoming a full-blown crisis and the sudden changes in global oil and gas markets—all of which reduced crude steel output. USS decreased its annual capacity from 17mn nt (15mn mt) to 3.8mn nt, idling 11.2mn nt for a 65.9pc reduction. Mining operations have also either been suspended reduced activity. USS will reduce its workforce by about 16pc, or 2,700 employees.
Crude steel production in USS’s flat rolled division increased by 2.4pc to 3.15mn nt in Q1 2020 from 3.08mn nt against the same quarter the prior year. The division’s capacity utilization increased from 73pc for the first quarter in 2019 to 74pc in Q1 2020. Crude steel production in US Steel Europe declined by 7.1pc to 882,000nt from 1.16mn nt in Q1 2019. Aggregate crude steel declined by 4.8pc to 4.03mn nt in the most recent quarter from 4.23mn nt in the same 2019 quarter. Capacity utilization in Europe declined sharply from 94pc in Q1 2019 to 71pc in the most recent quarter.
USS steel shipments totaled 3.5mn nt in Q1 2020, declining by 12.5pc against 4mn nt during the same quarter a year ago. Flat rolled shipments declined 8pc to 2.5mn nt in Q1 2020 compared to 2.7mn nt in Q1 2019. US Steel Europe’s shipments declined by 24.7pc to 801,000nt in from 1.1mn nt also in the same comparative period. Tubular declined by 9.7pc from 207,000nt in Q1 2019 to 187,000nt last quarter.
Comparing Q1 2020 with the same quarter a year ago, the average realized prices per segment decreased by 10.9pc to $711/nt in the company’s flat rolled division, by 8.8pc to $611/nt in US Steel Europe, and by 17pc to $1,283/nt in tubular, all average prices in Q1 2020 against the average price in the same quarter the prior year.
USS reported first quarter 2020 net sales decreased by 21.5pc to $2.75bn from $3.50bn during the comparable period last year. Its three business segments incurred losses last quarter compared to gains in Q1 2019. Flat Rolled lost $35mn in Q1 2020 compared to a gain of $95mn a year ago, while US Steel Europe lost $14mn compared to a gain of $29mn, and Tubular lost $48mn. US Steel had a net loss of $391mn in Q1 2020 against a gain of $54mn a year ago. The tubular asset impairment charge of $263mn made a considerable dent in the quarter.
USS obliged Stelco’s, one of its major iron ore buyers, decision to acquire 25pc interest in the company’s Minntac mining operations for an aggregate purchase price of $600mn. Stelco will pay $100mn through 2020 to activate the option, which can be exercised any time before Jan 31, 2027. Additionally, upon exercising the option, Stelco will pay $500mn more to acquire its 25pc interest in the new cost-sharing joint venture.
Capital expenditures decreased by 6.6pc to $282mn in Q1 2020 compared to the same quarter in 2019, with 68pc spent on flat rolled, 19.1pc on tubular, and 12.1pc on US Steel Europe.