U.S. Steel Corp. said that it expects to report a wider loss than analysts were expecting, the third American steel-maker in three days to warn on their outlook. The shares fell.
The Pittsburgh company cited weakening markets for flat-rolled steel and tubular products for the energy industry. It expects an adjusted loss of 35 cents a share this quarter, according to a statement Wednesday, compared with the average analyst estimate for a 6-cent loss.
The outlook comes after Nucor, the largest U.S. producer of the metal, and Steel Dynamics this week gave guidance short of estimates. Steel-makers raised some prices earlier this quarter, but buyers have been slow to accept the increases, underscoring fading optimism more than a year after the introduction of U.S. tariffs meant to bolster the industry.
"This speaks to the emerging weakness in the energy sector in U.S., it speaks to pervasive weakness in Europe as well," Phil Gibbs, an analyst at Keybanc Capital Markets, said in a telephone interview. "They're not getting help anywhere right now."
U.S. Steel stock dropped by almost a third this year through the close of trading on Wednesday. Shares fell 11% Thursday to close at $11.06.
On Monday, Charlotte, N.C.-based Nucor fell after saying its profit waned in the third quarter as prices decreased after a softening in several end markets. Performance in the steel mills segment is expected to decrease from the previous quarter "due primarily to lower prices for sheet and plate steel," Nucor said.
Since the tariffs were announced in 2018, shares of U.S. steel-makers have slumped over mounting concern that U.S.-China trade tensions threaten global economic growth and demand for the commodity. The S&P Supercomposite Steel Index of 13 producers has dropped 28% since the beginning of March last year.
U.S. Steel also said Wednesday that it's almost three-quarters of the way toward its goal of reducing its European workforce by 2,500 by the end of 2021. The company has eliminated 1,800 jobs in its European unit, according to the statement.
The company expects third-quarter 2019 adjusted earnings before interest, tax, depreciation and amortization to be about $115 million, which excludes about $53 million of estimated impacts from a fire at a coke-making facility and restructuring charges.
Steel producers are reeling from a manufacturing slump that has hurt its customers' ability to take on higher prices of the metal. A key U.S. factory gauge unexpectedly contracted in August for the first time since 2016, adding to evidence of global factory woes, and on Thursday the Organization for Economic Co-operation and Development lowered its global growth forecast as protectionist policies take an increasing toll on confidence and investment.
"All of these trade battles that are going on are creating uncertainty for everyone at every level, all the way from the manufacturer down to the end consumer," Randy Frederick, a vice president of trading and derivatives who helps oversee $3.7 trillion in assets at Charles Schwab in Austin, Texas, said in a telephone interview. "And uncertainty always breeds complacency, which ultimately is going to stifle demand for things like steel."
Adding to the travails is that steel-makers boosted production plans in the wake of the tariffs, which put self-inflicted pressure on prices. Ebbing demand from industrial customers and prospects for increased output are upending the optimistic outlook conveyed by the top executives of steel companies as recently as midyear.
The Institute for Supply Management's purchasing managers index fell to 49.1 in August, weaker than all forecasts in a Bloomberg survey of economists, according to a report earlier this month. Figures below 50 indicate the manufacturing economy is generally shrinking. Factory weakness has sparked worries over the possibility of a broader U.S. recession.
"We know that there are concerns about a recession in the U.S.," said Frederick. "A lot of it has to do with the trade concerns in China and a general slowdown overall in manufacturing."
The impact of the trade war on the U.S. economy hasn't escaped the notice of Federal Reserve policymakers.
"Business investment and exports have weakened amid falling manufacturing output," Fed Chairman Jerome Powell said Wednesday. "The main reasons appear to be slower growth abroad and trade policy developments, two sources of uncertainty that we've been monitoring all year."
"The macroeconomic outlook has not been friendly to the steel-makers this year," Tyler Kenyon, an analyst at Cowen in New York, said in a telephone interview. "Some of that could be associated with trade tensions and uncertainty globally, and softness in the global industrial economy. It's certainly changed the landscape for the steel-makers and their customers."
Information for this article was contributed by Steven Frank of Bloomberg News.
Business on 09/20/2019