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Soft summer not dimming Russel’s outlook

Keywords: Tags  Russel Metals, Brian Hedges, Marion Britton, steel prices, energy tubular, shale play, corinna petry

CHICAGO — The summer has proved challenging for some North American service centers, Russel Metals Inc. executives said Friday, citing a softening in demand and an inability to pass along the full extent of announced price increases on sheet products, but they continue to expect a strong performance during the second half of the year.

The Mississauga, Ontario-based company said its U.S. and Canadian service center, master distributor and energy tubular businesses have seen downward pressure on steel pricing this summer due both to lower demand and plentiful offshore supply, impeding Russel’s ability to pass along the full extent of flat-rolled price hikes, vice president and chief financial officer Marion E. Britton said during a quarterly conference call. "Some mill announcements don’t get pushed to customers immediately."

AK Steel Corp. kickstarted the latest round of sheet hikes in late July (, July 27) in a move that was followed quickly by a number of competitor mills.

"The mills just announced $40 (increases)," Russel president and chief executive officer Brian R. Hedges said during the conference call. "Twenty (dollars) may have stuck. Even if (the price) just flattens, our margins will get better because we aren’t taking losses on the sell side."

Despite some recent weakness in the flat-rolled sector, investments in facilities and new steel processing equipment have allowed the company to capture some market share from its peers, executives said. In fact, Russel’s quarterly and first-half shipments were much higher than the average for both U.S. and Canadian service centers tracked by the Metals Service Center Institute, Britton noted.

"We cannot say where we took market share. Ontario trails the recovery (in the rest of Canada) but we are seeing year-over-year growth. I think we’re taking it everywhere. Probably some of it is that our (non-automotive) customer base is doing well," Hedges said.

Russel’s energy tubular business also is strong, delivering to western Canada and the United States, and should grow further next year when pipeline supply contracts are awarded and deliveries begin.

"Our energy business is mostly larger OD (outer-diameter) pipe going to shale plays. They cannot move product easily because the infrastructure is not there," Hedges said. "That will continue for the next six months" as Russel continues to bid on orders of between $15 million and $30 million.

Russel will soon begin stocking up for large projects expected in 2013. "We shipped a lot of medium-size bids (this year). It wasn’t really contract business, but we won a fair amount (of orders) and shipped some of our inventory, which we will restock next year," Hedges said.

The positive outlook for the sector comes despite some inconsistency of project timing, Britton said. "We are experiencing some delays (with energy companies) slowing down implementation dates. But the projects will go through."

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