Toronto-based Russel Metals reported “stellar” results for its third quarter, attributing the company’s success to a high steel price environment and improved demand in all three of its business segments: service centers, energy products and steel distributors.
Trade actions by government authorities have increased steel prices, which has benefited both producers and distributors. However, these actions have created significant uncertainty in the industry, said John G. Reid, Russel president and CEO. “We are extremely pleased with the performance of our operations across all segments as we continue to successfully navigate an environment filled with trade disruptions and evolving supply chains.”
Russel executives noted that the U.S. has maintained its Section 232 tariffs on steel and aluminum imports, even as it negotiated a new North American trade agreement. Canada responded with retaliatory tariffs and later safeguard measures to prevent a surge of foreign steel onto Canadian shores. “The tariffs and safeguards are causing a lot of uncertainty. We continue to watch them. But we feel we are in good shape for whatever should happen in the future,” said Russel CFO Marion Britton.
“I applaud the Canadian government for taking quick action to keep Canada from becoming a dumping ground,” added Reid. Asked if Russel is hoping the United States lifts the tariffs, Reid commented: “Our best scenario would be the elimination of tariffs in North America so we could trade freely, but maintain them on the rest of the world. The real problem is not in the U.S., it’s not in Canada, it’s the overcapacity in the world market predominantly driven by China. That’s what needs to be addressed.”
Russel reported revenues of $1.1 billion for the third quarter and net income of $68 million, double the income from the same quarter last year. (Note, all figures are in Canadian dollars.) Improved selling prices and increased volumes, led primarily by U.S. line pipe projects, resulted in strong operating income for the company, which does business on both sides of the border.
Revenues from Russel’s metal service centers operations jumped by 35 percent in the quarter to $559 million due to increased selling prices. The average selling price improved 28 percent over third-quarter 2017 reflecting continued growth in value-added processing and steel price increases, the company said. Operating profits of $55 million were more than triple the $18 million reported in the same quarter in 2017.
Revenues in Russel’s energy products segment increased 38 percent to $463 million. Revenue increases were due to U.S. line pipe projects and higher oil field service store activity. This segment had operating profits of $40 million compared to $34 million in the same quarter last year.
Revenues in Russel’s steel distributors segment increased by 17 percent to $114 million due to higher steel prices on lower volumes resulting from logistical issues at the ports. Operating profits were $10 million compared to $8 million in the 2017 third quarter.
For the nine months ended Sept. 30, 2018, Russel’s revenues grew by 23 percent to $3.0 billion due to higher selling prices and volume increases at most of operations. Its year-to-date earnings of $173 million were a considerable improvement on earnings totaling $96 million for the same period in 2017.
Looking ahead, the company expects demand in all segments to remain stable in the fourth quarter with normal seasonality. “We believe that steel prices will remain range bound for the fourth quarter subject to any impacts from tariffs and safeguards,” Britton said.
“Heading into the fourth quarter, overall demand remains steady and pricing appears to be stabilizing across all products,” Reid said. “Our metals service center operations continue to benefit from solid demand levels and growth in our value-added processing strategic initiative. The Canadian rig count remains at a healthy level for our Canadian energy operations. Our U.S. energy operations are expected to continue to benefit from the increased rig counts and drilling activity.”
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