U.S. Steel posted a slight pretax profit on its steel operations in the first quarter but still reported a huge net loss Tuesday because of the slump in its other big market--oil.
The nation’s largest steelmaker diversified into oil in 1982 in the belief that riches from the world’s oil fields would offset the mounting losses from its steel mills, but now that strategy has backfired.
In the first quarter of 1986, plunging oil prices resulted in a net loss for the company of $249 million on sales of $4.7 billion, compared to a net profit of $185 million on sales of $5 billion in the like 1985 quarter.
The company said the loss was caused primarily by a $351-million write-down of its oil inventories, which have fallen in value because of the steep decline in oil prices in recent months. A number of other major oil companies have also started writing off their oil inventories.
The big loss came despite an $8-million operating profit on the company’s steel business. “I was surprised; I was expecting a loss on steel,” said Charles Bradford, a steel analyst with Merrill Lynch.
Still, those earnings were 76.5% below last year’s pretax steel income of $34 million; U.S. Steel said the profit fell because steel prices were 10% below year-ago levels.
Has Faith in Quota Program
U.S. Steel said steel imports, which are still above the levels mandated by the Reagan Administration’s 1984 quota program, are helping to depress prices. But the company remains convinced that the “President’s steel trade program has begun to work” because imports are slowly beginning to decline.
To reduce the losses from its oil operations, U.S. Steel said Tuesday that it has started to slash costs and lay off workers--much as it has already done in steel. Spending on oil exploration and related capital investments is being cut by 35% in 1986, while the firm said it laid off 1,100 workers in its energy segments during the first quarter.
U.S. Steel’s Marathon Oil subsidiary, a major producer in the Libyan oil fields, reported an operating loss of $173 million, in part because of new restrictions on its transactions with Libya.
The Reagan Administration has allowed U.S. oil companies to remain--with restrictions--in Libya in spite of American economic sanctions against that country for its sponsorship of terrorism. U.S. Steel said that Marathon has suffered a “substantial reduction in Libyan crude oil sales” because of those restrictions at the same time that the drop in worldwide crude prices has eaten into earnings.
Meanwhile, financially troubled Bethlehem Steel, the nation’s third-largest steel producer, also reported a big loss for the quarter.
But, unlike U.S. Steel, Bethlehem actually lost money on its steel operations. The company reported a net loss of $91.8 million on sales of $1.169 billion for the quarter, compared to last year’s loss of $62.1 million on sales of $1.214 billion. Its basic steel operations posted a loss of $36.4 million, compared to a loss of $38.2 million in 1985.
While its steel shipments were slightly better during the first three months of the year than they were at the end of 1985, prices remained depressed, Bethlehem noted.
Bethlehem, which held its annual meeting Tuesday, also announced that Chairman Donald H. Trautlein, a major proponent of trade relief for the steel industry in recent years, will retire May 31. Trautlein, 60, who has led the industry’s trade association in many of its lobbying efforts for stricter limits on steel imports, has been Bethlehem’s chairman since 1980. Bethlehem President Walter F. Williams has already succeeded Trautlein as chief executive.