Northwest Indiana's two major steelmakers are both expected to report losses during the third quarter, though market conditions have been gradually improving.
U.S. Steel has announced it expects to take a $1.8 billion write-down on North American flat-rolled and tube operations, meaning it paid more to buy facilities than what they were worth. The company blamed a protracted economic recovery, a glut of steel suppliers and a flood of cheap tube imports.
Industry analysts are predicting U.S. Steel will lose money for the fourth consecutive quarter, and ArcelorMittal will record its fifth straight quarterly loss. They are, on average, forecasting a loss of 16 cents per share for Luxembourg-based ArcelorMittal and of 43 cents per share for Pittsburgh-based U.S. Steel, according to Zacks Investment Research.
"It shouldn't be called an earnings report, because it will be a loss," said Charles Bradford, a New York-based steel industry analyst. "It's like when they say negative growth – it's an oyxmoron. There's a hell of a difference between loss and profit."
Last quarter, ArcelorMittal posed on a loss of a $780 million, blaming low prices and soft demand, especially in its economically troubled home base of Europe. Locally, the company employs more than 11,000 workers at operations in Burns Harbor, East Chicago, Gary, Riverdale and New Carlisle.
After the disappointing second quarter, the steelmaker lowered its guidance for the rest of the year, forecasting that annual earnings before expenses would be $6.5 billion instead of the $7.1 billion it originally predicted.
U.S. Steel – which has local operations in Gary, Portage and East Chicago – reported a $73 million first quarter loss and a $78 million second quarter loss. About two weeks after U.S. Steel reported another quarterly loss, the board replaced CEO John Surma with former Alcoa executive Mario Longhi.
"They called it a planned succession, but their whole succession plan was to hire somebody," Bradford said. "Surma and Longhi and the same age, within a month of each other."
Longhi has been leading a company-wide cost-cutting effort. One of his biggest moves so far was the write-down, an admission the market value of flat-rolled and Texas tubular operations has plunged, Bradford said.
Flat-rolled steel goes into cars and appliances, while tubular products transport oil and natural gas. U.S. Steel overpaid for plants it bought in Canada and Texas, Bradford said.
"New management always wants to start off with a clean house and blame the prior guy for causing as many problems as possible," he said.
A few signs are encouraging about the future, Bradford said. Automakers continue to have a robust demand for steel, and U.S. Steel has been able to successfully raise prices on some of its products.
U.S. Steel will report its third quarter results Tuesday, while ArcelorMittal will update shareholders on its quarterly performance on Nov. 7.