CHICAGO — Timken Co. has seen foreign demand for its diversified product line decline since the second quarter, which is now affecting some domestic sectors, said president and chief executive officer James W. Griffith.

"Reduced demand for commodities has translated into lower demand for mining, and oil and gas drilling equipment, (and) is now impacting our steel shipments in the United States," he said.

Timken anticipates full-year steel sales will fall between 11 and 13 percent from 2011 levels.

Steelmaking ran at roughly 60 percent of capacity utilization during the third quarter vs. a peak of 78 percent in the first half. The Canton, Ohio-based company is still trimming output to respond to soft fourth-quarter demand, so melting capacity will be at or below 50 percent through year-end.

Timken is also adjusting inventory. Customers "overshot a bit earlier in the year," steel group president Salvatore Miraglia Jr. said. Excess U.S. inventory of billets, engineered bar and seamless tubing is magnified by imports "attracted by the healthy North American energy market," he added.

"That total has to evaporate to some extent," Miraglia said. "But it’s not terrible. We’ll see a hangover of inventory liquidation into the first quarter, but continuously lessening as we go. Some customers have more or less reached the end of it; others have not."

Timken sees weak spot pricing, but 85 to 90 percent of the company’s tons are on contract—some with two-year terms that run through mid-2013.

"We are having success with rollover pricing (from old to new contracts), meaning we’re not seeing much deterioration at all. We expect to continue operating in that realm," Miraglia said. "All in all, we’re looking at pretty flat pricing. What you’ve seen this year is something you can expect to see next year."

Miraglia’s positive view of next year’s steel profit picture is bolstered by the fact that Timken chases higher value-added product lines and has protected itself by backward integrating into raw materials and recycling, which has "given us some stability," he said.

Timken’s contract customers are "bullish on (their) demand levels longer term," Miraglia said, which means that Timken’s incremental capacity additions—some of which will start up in the second quarter of 2013—"will be put to very good use."