First loss in six quarters posted
Stelco Inc., the legally insolvent steel giant that turned court proceedings upside down by making money, is losing it again.
Hamilton- based Stelco reported yesterday $42 million in red ink in the third quarter ending Sept. 30, down substantially from profit of $58 million in the same 2004 period. The results pulled down profits for the first nine months to $47 million. Stelco earned $63 million in the first three quarters of 2004.
Stelco said it expects improvements in prices and shipments in the fourth quarter but higher energy costs and a temporary shutdown of one operation will offset those gains. Beyond the fourth quarter, chief executive officer Courtney Pratt revealed that Stelco had regained business from its largest customer, General Motors, for next year. Stelco lost that business this year because possible labour unrest could have disrupted deliveries.
Pratt would not disclose how much steel GM would be buying in 2006. The latest three- month loss followed five profitable quarters when Stelco, the country’s biggest steel maker, made $ 190 million despite operating under court protection from creditors.
Sales in the third quarter tumbled 19 per cent to $725 million from the corresponding 2004 period because of softer spot prices, less production, higher energy costs and more reorganization expenses.
Other steel makers have also experienced lower profits because of lower prices and higher costs. The latest results prompted Pratt to stress the need for acceptance of a restructuring plan including critical capital for upgrades so the company can become competitive. “The third quarter results demonstrate the continuing competitive challenge we face and the vital importance of securing a consensual restructuring, which will enable us to move forward with our strategic capital program,” Pratt noted in a statement.
“ As we have said throughout this process, this capital program is essential to making Stelco competitive through all stages of the market cycle and ensuring a positive long- term future.”
Bondholders have indicated that they will reject the plan at a creditors meeting scheduled for next Tuesday because it means they will take a hit while other non- voting stakeholders emerge without any concessions.
However, Stelco said discussions are continuing with bondholders to try to resolve the differences before the vote. Pratt would not disclose any other details on those talks.
“Obviously, we’re at a very critical stage,” Pratt said. The current plan features $450 million in financing from Brascan’s Tricap Management and a $100 million loan from the Ontario government. Bondholders, who hold debts totalling about $650 million, would receive about 66 per cent of that amount.
Creditors would also receive 1.1 million new shares but existing shareholders would be wiped out under the plan. Stelco is also selling key subsidiaries and has signed tentative contracts with two union locals.
Current shareholders and the biggest United Steelworkers local in Hamilton also oppose the plan, but they have no voting rights.