CHICAGO Timken Co. doesnt plan to curtail capacity at its steel business as it is realizing profits even at low utilization rates, the company said.
The decision might run counter to investors expectations since the Canton, Ohio-based company is working to separate its steel and bearings businesses, but executives said that investments in its steel operation increase Timkens ability to meet tougher high-quality applications that command a premium, thereby enhancing steel margins.
"Our automated tool processing line is up and running, lowering both fixed and variable costs. The forge press and ladle refiner are both operational and being qualified with new, differentiated products, and we plan to start up our vertical caster in mid-2014, improving our structural costs at all levels of demand," president and chief executive officer James W. Griffith said during an earnings call.
Steel production is operating about 55 percent of capacity, chairman Ward J. "Tim" Timken Jr. said, but "weve actually had favorable pricing."
Typically achieving double-digit margins with that rate of utilization, although not during the third quarter, allows the steelmaker to offer "very high service levels, (and) we do not see a need for large capacity rationalization, given the markets we choose to serve and the places we create value," Griffith said.
"The steel business has not taken out and is not taking out any capacity," group president Christopher A. Coughlin said.
"The steel business is actually performing pretty well and only gets better as our mix and our volume improves," Tim Timken said. "That we can hit these kinds of margins (10.2 percent for the nine months ended Sept. 30) at an average of 55 percent of capacity for the year is pretty impressive relative to the rest of the industry."