U.S. Steel will spend $195 million this year to completely rebuild the No. 13 blast furnace at Gary Works, the company announced Tuesday as it discussed its record earnings in 2004.
The blast furnace was the site of two recent serious carbon monoxide incidents, killing one man and seriously injuring three others. Company officials said the furnace will be down for up to 100 days this summer as they try to extend the furnace’s life.
No one will be laid off as a result of the outage.
On Monday, U.S. Steel announced that it had turned around a $463 million net loss in 2003 to a nearly $1.09 billion net profit in 2004. And on Tuesday, steel analysts hailed the results saying they were even better than they had hoped.
The company’s stock (X:NYSE) closed at $51.16 on Tuesday, up 79 cents from Monday.
John Surma, U.S. Steel president and CEO, credited the company’s workers. “I’d like to publicly acknowledge all of our employees for their contribution to these outstanding results,’’ he said.
Surma also said U.S. Steel will seriously consider acquiring other companies this year in addition to its large capital investment projects.
U.S. Steel said it will face higher raw material costs in certain sections in the first quarter including scrap and natural gas costs. The company’s flat rolled shipments will also decline in 2005 because of the rebuild on the No. 13.
The 31-year-old blast furnace has the capacity to produce 8,200 tons of molten iron daily, but officials say it needs to be rebuilt to improve its efficiency. The furnace had an unplanned outage earlier this month from Jan. 2 to Jan. 11.
“We’ve had a couple of blips at Gary,’’ Surma said. “I’d call them all minor problems. Thirteen is a special case. It’s nearing the end of the campaign and we’re trying to make sure we operate it carefully.”
Surma did not discuss the accidents in an analysts earnings call on Tuesday. However, a company spokesman said later on Tuesday that the age of the blast furnace was unrelated to the accidents.
On Dec. 21, supervisor Karl Richards died from apparent carbon monoxide exposure and on Jan. 17, three contractors with Roger & Sons Construction were seriously injured after being exposed to the gas in the same blast furnace.
“None of the issues we’ve seen as far as people getting injured or killed have been the result of the age of the blast furnace,’’ spokesman John Armstrong said. “Those have been issues of people following safe job procedures.”
State officials are still investigating both accidents.
The blast furnace had a major reline in 1991 and workers completed other work in 1996.
“Things wear out in it,’’ Armstrong said about the furnace. “So, you have to replace them. One of our primary goals in rebuilding the blast furnace is to extend the campaign life. When we do something, we make it last longer.”
During the rebuild, some local workers will help complete the project and others will be reassigned to additional projects.
The company made history for its annual performance and fourth quarter earnings as well as breaking the previous record that was set in the third quarter of 2003. In the fourth quarter, the company had a net income of $462 million compared to $354 million in the third quarter.
Meanwhile, local union workers are eagerly wondering what type of profit sharing checks they’ll be getting for the fourth quarter, union presidents said on Tuesday.
Mike Mitchell, Local 1014 president, said the union hasn’t been told how much it will receive yet, but pointed out the formula for calculating the check is complex. Workers received checks of more than $2,700 in the third quarter.
Manuel Franco, president of Local 1066 at Gary Works, says he won’t even hazard a guess about what the check might be. “It’ll be more than $1 and less than $1 million,’’ he said. “That’s what I tell them.”
Meanwhile, the company said it reached deals with customers for contract negotiations. Surma wouldn’t discuss the specifics, but said the company is pleased. “I think both sides were satisfied,’’ Surma said.
The company also said it has been trying to shore up its underfunded pension account and contributed $295 million in the general pension fund in 2004. The fund is still about $300 to $400 million underfunded as of Dec. 31, 2004, officials said.
Steel analyst Charles Bradford believes the company will battle high material costs in Europe in 2005. He also predicts that domestic steel prices will be flat in early 2005. In a report, Bradford said U.S. Steel is “especially advantaged compared to other domestic steelmakers as it has its own iron ore and a surplus in coke-making capacity.”
Bradford has issued a “Buy-rating” on U.S. Steel and it is the company’s only steel “buy”.
“We believe that it is more attractive than the other steel stocks because of its low multiple on cash flow and strong raw material position,” Bradford’s company said.
