Steelmakers to post earnings decline

September 30, 1990|By Dow Jones News Service

PITTSBURGH -- The steel industry will report lower third-quarter earnings as weak prices and higher costs offset relatively strong shipments.

The industry has been noticeably resilient given the weak economy. Most steelmakers maintained high operating rates throughout the traditionally weak third quarter, and some are booked through the fourth quarter.

Orders received through August totaled 88.9 million tons at a seasonally adjusted annual rate, compared with 84.1 million tons shipped last year.

L And inventories at both the user and mill levels remain low.

Moreover, although prices are still lower than the very high prices of a year ago, steelmakers have boosted prices throughout the quarter. And steel producers have signaled a new round of price increases for early next year.

Despite the positive signs, most major steelmakers will have lower third-quarter earnings, compared with last year. Analysts expect profits to be $18 to $20 a ton, compared with $25 to $28 a ton year ago.

The biggest factor in the decline is prices.

John Tumazos, an analyst with Donaldson Lufkin & Jenrette Securities Corp., pointed out that last year's third-quarter

average reve

nues per ton for the major steelmakers came to $516. This year's third-quarter revenues will be the same as in the second quarter, $497 a ton, he said.

At the same time, profits are being squeezed by increased operating expenses. The cost of raw materials such as zinc and nickel rose, as did labor costs, reflecting wage contracts most major producers signed last year.

Some steelmakers, such as Bethlehem Steel Corp., should have higher third-quarter costs because of scheduled equipment outages.

PaineWebber Inc. estimates Bethlehem's third-quarter earnings at 21 cents a share, compared with last year's 54 cents.

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