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Gas Costs Hit Steel Earnings

AK Steel has a loss, while U.S. Steel earnings slide.
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Two big steel makers,

U.S. Steel

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AK Steel

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, reported weaker quarterly results Tuesday as higher energy costs weren't completely recouped in product prices.

U.S. Steel said third-quarter earnings fell 70% from last year to $107 million, or 82 cents a share, on a 14% decline in sales to $3.2 billion. Analysts were forecasting earnings of 77 cents a share on sales of $3.26 billion.

In addition to repairs at two major blast furnaces, U.S. Steel cited a sequential decline in operating income in its flat-rolled steel segment, which "primarily reflected lower spot prices and higher natural gas costs."

U.S. Steel expects flat-rolled shipments and average realized prices to rise in the fourth quarter compared with the third, but said the improvement will be more than offset by higher costs for natural gas.

"With continuing reductions in service center inventory levels and firming spot prices, we expect fourth quarter market conditions to show improvement over the third, but results will remain well below those of the first two quarters of the year," it said.

"Our order book remains strong across all industries, but we will continue to be affected by high natural gas prices and by reduced domestic raw steel capability for the duration of the Gary blast furnace rebuild," U.S. Steel said.

AK Steel lost $29 million, or 26 cents a share, in the quarter, reversing a year-ago profit of $83.1 million, or 76 cents a share. Sales were $1.39 billion vs. $1.34 billion. Analysts were forecasting a loss of 33 cents a share on sales of $1.38 billion.

"As previously announced, the company's third quarter 2005 results were impacted by a significant cost increase for natural gas, primarily the result of gas production disruptions following Hurricanes Katrina and Rita, as well as increased costs for steel scrap and other raw material inputs," the company said.

AK expects to realize higher steel prices in the fourth quarter on lower shipments, "with continued spot market pricing improvements," and said it should record an operating profit of $18 million to $20 million per ton shipped before certain noncash charges. It also expects to "continue to be impacted by higher energy and raw material costs, as the natural gas production-related effects of Hurricanes Katrina and Rita linger."