US Steel sees "early stages of a gradual recovery"

NEW YORK Tue Oct 27, 2009 6:02pm EDT

NEW YORK Oct 27 (Reuters) - U.S. Steel Corp (X.N) said it sees early stages of a gradual U.S. and global recovery in steel demand, but its fourth-quarter outlook remained cautious as orders have fallen from third-quarter rates, due in part to seasonal slowdowns.

"We expect improvement in our overall fourth-quarter results mainly as the result of increased demand for flat rolled products in North America, driven primarily by automotive markets and continued strength in tin mill markets," said Chairman and Chief Executive John Surma.

But he added that "We remain cautious in our outlook for end user demand as customer order rates and our flat rolled and order segments have decreased from the third quarter partly due to seasonal slowdowns."

Executives spoke to analysts after U.S. Steel reported a smaller third-quarter loss than forecast by Wall Street. [nN27243732]

U.S. Steel said it expects a fourth-quarter operating loss due primarily to continued low operating rates and idled facility carrying costs for flat rolled and tubular segments.

"Despite these concerns and uncertainties, we believe that the U.S. and global economies are in the early stages of a gradual recovery, aided by global stimulus policies and may be supported by continued improvement in credit markets and inventory restocking," Surma said.

The executive said the company will continue to adjust production to meet customers' demand. But it has in process what it needs to fill its order book, which is stronger than a month or two ago.

"As the order book slows, our shipments will have less on the ground or in the process when we get to the end of the year. We're just going through a mini cycle almost within the fourth quarter," said Surma.

"Coming out of this quarter, you know, we're coming out at a higher (utilization) rate than average. We'll probably move down throughout the fourth quarter as we see seasonal (slowdown) effects," the CEO said.

For flat rolled steel products, U.S. Steel expects fourth quarter results to improve somewhat from the third quarter due mainly to higher average realized prices and shipments.

It also said it expects to report an operating loss for the fourth quarter primarily due to low operating rates and continued carrying costs for idled facilities.

To adjust production to meet customer order rates during the fourth quarter, it plans to idle the No. 14 blast furnace at Gary, Indiana for needed repairs as well as one of two at Granite City.

Asked about the shutdowns, Surma said it was in part to repair the furnace, but also seasonally the right time with order books starting to slow.

"If that should change, we can delay it," he said.

As a result, he said, "We currently expect fourth-quarter capability utilization rates to be in line with the third quarter level," but declined to give a specific rate.

Instead, he said, if the company idles the two blast furnaces, it will be operating below the recent U.S. industry average of 63.2 percent. (Reporting by Carole Vaporean; Editing by David Gregorio)