BY ANDREA HOLECEK
Times of Northwest Indiana

Integrated steel companies had record profits in 2004, but industry insiders doubt whether 2005 will be a contender for the same honor.

U.S. Steel Corp., International Steel Group Inc. and Ispat Inland Inc. all saw their profits climb to decade-long highs last year when global demand and market conditions converged with domestic company reorganization and consolidation to produce historically high product prices.

Prices peaked in August and gradually declined into the new year, which spurred a tad of concern about future earnings. But prices have remained at levels more than 50 percent higher than a year ago.

"Purchasing" magazine recently reported that buyers for Midwest manufacturers are withholding purchase orders as they work off their inventories. Automakers also reportedly have reduced orders with the slowdown in vehicle demand.

But Ian Christmas, head of the Brussels-based International Iron and Steel Institute, has said that 2005 global steel production likely will be "close" to demand, which would sustain the commodity's prices.

"I don't see any return to the old price levels,' he reportedly said in January.

"The industry and its customers are going to have to get used to steel prices in the future being around about these levels.'

Yet steel stocks dropped this week after U.S. Steel Chief Executive Officer John Surma said he couldn't forecast if this year will be as profitable as 2004, when the company had $1.09 billion in earnings.

Just a few weeks ago when announcing U.S. Steel's record profits, the company stated it expected first-quarter prices for flat rolled products to remain in line with prices in the fourth quarter, but earnings would be hit by higher raw material and natural gas costs.

International Steel Group's CEO Rodney Mott made the same observation as did global steel guru Lakshmi Mittal, soon-to-be majority owner of the world's largest steel company, during the back-to-back conference calls Thursday to report 2004 earnings.

New York-based steel analyst Charles Bradford agrees. Business currently is on "the soft side,' with service centers slowly working down the high levels of the inventory they stockpiled in the third and fourth quarters when steel prices were high but supplies tight. Service centers buy steel coil or plate from the mills, then cut, slit or otherwise process it before selling it to a manufacturer of a finished product.

The price of scrap is falling, which indicates a weak steel market, Bradford said.

Yet he contends no one can predict accurately how the steel industry will fare in 2005, because there are so many uncontrollable factors involved, including the following: Chinese consumption, production and demand; global economic conditions; and raw materials prices, plus the possibility of a catastrophic event that can upset an entire economy.

"I don't think earnings will be as high in '05 as in '04," Bradford said. "But it will still be a good year. Steel companies are making so much money, they've almost become banks.'

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