IPSCO (NYSE: IPS; Toronto) - "The outlook for continuing high demand for IPSCO's oil country tubulars appears excellent over at least the next two quarters but while the seeds have been sown for a rebound in plate it is quite possible that this will not become evident until the first half of next year" said Roger Phillips, IPSCO Inc. President and Chief Executive Officer, in remarks prepared for a meeting with steel investors scheduled for Toronto today.
With respect to oil country tubular goods the price of oil remains high and while short term natural gas prices are depressed the depletion rate for gas in Canada and the U.S. continues to exceed that for new finds. By all accounts we expect a strong winter drilling season in Canada extending into March 2002. With respect to large diameter gas transmission pipe IPSCO's recently announced order for 54,000 tons of 36 inch diameter grade X70 pipe means that our Regina large diameter mills will be fully occupied until year- end.
"The U.S. manufacturing sector, exclusive of telecom and IT equipment, seems to have bottomed out," Phillips said. "The squeeze out of excess inventories in the manufacturing supply chain appears to have run its course. This is particularly true for steel plate in the hands of industrial distributors where inventory reductions have proportionately exceeded the drop in demand. As soon as it becomes evident that demand is improving we can expect the distributors to start replenishing their stocks and with any sign that prices are about to move upwards there will be the further impetus to place orders before the price advances too far. Just as we have seen a reduction in inventories to disproportionately low levels we can expect an influx of distributor business exceeding the real increase in demand. Will this happen in the fourth quarter or next year? I don't know, but all the numbers point to such an eventual inevitability."
"On the tubular side we can expect a similar rebound for non-energy applications," Phillips added.
Imported steel continues to play an influential role in the North American steel market resulting from the huge surges of unfairly traded steel as well as subsequent country and product shifting as importers have reacted to individual unfair trade cases.
"On the supply side IPSCO's Mobile Steelworks has now progressed far enough in its startup phase to permit a two to three week shutdown of the Montpelier operations to perform long needed major modifications to its slab reheat furnace. This has been scheduled for early October. In the meantime even at this late date in the quarter it is difficult to give precise guidance as to our third quarter results," Phillips said. "On the one hand unforeseen production costs at Montpelier could develop due to potential maintenance problems between now and month end. In addition Western Canadian weather patterns in September historically are unpredictable and a dry period for the balance would be good while rain would slow our sales down. One thing I currently feel confident about is that our numbers will be better than our adjusted figures for the second quarter," he added. In the second quarter, neglecting one-time events, principally the proceeds of a lawsuit, IPSCO earned 11 cents US per share. On the other hand Phillips said that he didn't see IPSCO exceeding last year's third quarter results.
Similarly there are uncertainties with respect to IPSCO's fourth quarter. A quick restart at Montpelier would be positive as would an early start of winter weather in Western Canada. The large diameter pipe order will also favorably impact the bottom line. On the other hand the pricing situation for discrete plate remains unsettled. And in the fourth quarter ongoing interest expense and commissioning costs, capitalized during the startup period the Mobile Steelworks, will be expensed. While this will not impact cash flow it will affect earnings per share. Given this our reported earnings should be lower than the third quarter but we expect to remain profitable. "In this rapidly changing world economy it would be foolhardy to say too much about 2002 until much later in the year," Phillips concluded, "especially in view of ongoing trade actions in the U.S. which may well lead to further restrictions on steel imports, boosting domestic demand, as well as talks initiated by the U.S. administration aimed at achieving some sort of international accord to reduce excess world steel capacity." |
