U.S. Steel Corporation (USS) is reporting a net loss of $392 million or $2.92 per diluted share in the second quarter of 2009, compared to a net loss in the first quarter of $439 million or $3.78 per diluted share and a net income in the year-ago period of $668 million or $5.65 per diluted share.

“Our second quarter operating loss was in line with the first quarter as our order book and operating rates remained at very low levels, spot market prices declined, and we continued to incur carrying costs for our idled facilities,” USS Chair and CEO John Surma said in a statement released today.

“While we anticipate an increase in our third-quarter operating rates from the extremely low levels of last quarter,” Surma said, “we expect each of our segments to report an operating loss in the third quarter due to continued low operating rates, idled facility carrying costs, and lower average realized prices.”

“There are some signs that the de-stocking cycle has ended in the North American and Central European steel markets as increased customer orders across all industry segments have resulted in an extension of lead times,” Surma added. “We have begun to bring up idled facilities in line with customer demand and we have implemented price increases in our flat-rolled and (U.S. Steel Europe) segments in the third quarter. Despite these signs of improvement, the outlook for overall demand remains uncertain and the timing and magnitude of sustained economic recovery remain difficult to forecast.”

Items not allocated to segments in the second quarter increased net income by $49 million or 36 cents per diluted share, offset only partially by other items not allocated to segments which reduced net income by $4 million or 3 cents per share. Items not allocated to segments in the first quarter increased net income by $7 million or 6 cents per diluted share.

There was also a a foreign currency gain in the second quarter which increased net income by $41 million or 31 cents per diluted share, compared to a foreign currency loss in the first quarter which reduced net income by $28 million or 24 cents per share.

“During the second quarter of 2009,” USS said, “U.S. Steel raised $1.5 billion through common stock and senior convertible notes offerings, repaid $655 million of term loans due in 2010 and 2012, and amended our revolving credit facility to eliminate certain financial covenants and provide lenders with a security interest in domestic inventory. We ended the second quarter with total liquidity of $3.1 billion.”

Segment losses from operations were $510 million or $173 per ton, compared to a loss of $457 million or $142 per ton in the first quarter and an income of $959 million or $136 per ton in the year-ago period.

“The lower overall results as compared to first quarter 2009 reflect significantly lower tubular results which more than offset the changes in flat-rolled and USSE,” the statement said.

Flat-rolled reported a loss from operations of $362 million in the second quarter, compared to a loss of $422 million in the first quarter and an income of $468 million in the year-ago period.

Flat-rolled operated at 32.4 percent in the second quarter, compared to 38 percent in the first quarter and 92.7 percent in the year-ago period.

Average realized prices were $677 per ton in the second quarter, compared to $715 per ton in the first quarter and $777 per ton in the year-ago period.

Shipments were 1,815 net tons in the second quarter, compared to 2,123 net tons in the first quarter and 4,849 net tons in the year-ago period.

USS attributed the smaller loss in the second quarter primarily to “the non-recurrence of accruals recorded in the first quarter for estimated future layoff benefits and for losses on excess natural gas forward purchase contracts, as well as reductions in spending and labor, partially offset by lower average realized prices, additional lowering of cost or market inventory charges, and reduced shipments.”

“Second quarter results reflected continuing employee and other costs for idled facilities totaling approximately $285 million, compared to $230 million in the first quarter of 2009, as our Lake Erie Works was idled for the entire quarter and we idled additional ore capacity.”

Flat-rolled third-quarter results are expected to “decrease from the second quarter, reflecting lower index-based contract prices, which tend to lag the spot market, and increased shipments of lower margin semi-finished and hot-rolled product.”

“Raw steel capability utilization and shipments are expected to improve in line with increased customer orders as we re-start raw materials and steelmaking operations,” USS added. “However, the favorable effects of these items are expect to be offset by higher raw material and energy costs, as well as costs to re-starting idled facilities at our Granite City Works and several raw materials operations.”

“Consideration will be given to re-starting other facilities if sustained customer demand supports higher product levels,” the statement said. “Also, we are currently negotiating with the United Steelworkers for a successor to the labor agreement covering our Lake Erie Works operations, which expires on July 31.”

USSE reported a loss from operations in the second quarter of $53 million, compared to a loss of $159 million in the first quarter and an income of $298 million in the year-ago period.

The company attributed that improvement “to lower raw material costs, sales of emissions allowances, and lower inventory write-downs,” partially offset by lower average realized prices.

Tubular reported a loss from operations in the second quarter of $88 million, compared to an income of $127 million in the first quarter and an income of $177 million in the year-ago period.

“Tubular results continue to reflect the impacts of lower oil and gas exploration and production activity, high inventory levels, and the surge of unfairly traded and subsidized product from China,” the statement said.

Other businesses reported a loss from operations in the second quarter of $7 million, compared to a loss of $3 million in the first quarter and an income of $16 million in the year-ago period.

Net sales in the second quarter were $2.127 billion, compared to $2.75 billion in the first quarter and $6.744 billion in the year-ago period.

Posted 7/28/2009