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Jul 26, 2022

'Not yet': Stelco CEO leaves door open to possible dividend cut

We're in for some rough seas in steel: Stelco CEO

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The head of Hamilton, Ont.-based steel manufacturer Stelco Holdings Inc. said the company’s balance sheet is likely strong enough to maintain its dividend, despite painting a bleak outlook for steel prices and demand.

“Not yet,” said Alan Kestenbaum, executive chairman and chief executive officer of Stelco, in an interview Tuesday when asked about the possibility of the company having to cut its dividend in the near future.

“The way we're looking at it right now, and one of the benefits of the cash that we have, is that we're able to maintain the dividend.”

The company announced in an press release Monday it expects adjusted profit in the third quarter to be “materially below” second quarter levels as the market for steel softens.

It did not provide specific forecasts for its upcoming quarters. The company said second quarter adjusted profit is expected to be in the range of $460 million to $470 million, an increase sequentially and compared to the year before.

Since March, however, Stelco shares have fallen more than 40 per cent.

Kestenbaum said he would consider share buybacks if the price was appropriate but noted Stelco shareholders should be invested for the long term.

He added there’s been a substantial drop in steel demand in two key interest rate-sensitive sectors – automotive and construction.

Typically, as borrowing costs rise, it can lead to consumers putting off vehicle and home purchases – something Kestenbaum said end-market customers were noticing. 

“These are two very important markets for the steel industry and, you know, we’re in the very early innings. I think we're going to continue to see the [U.S. Federal Reserve] continue to raise interest rates. They have said they want to bring about an economic softness ... that has to be the goal to deal with the inflation,” he said.

He said he believes this downturn could last one to three years, but that the company is already in “batten down the hatches mode” to prepare its balance sheet in case of a deterioration in market conditions.

“We're anticipating an approximately 25 per cent drop in steel consumption from all the major areas in North America. The most painful part of that we anticipate happening during Q1 and Q2 of next year as the full impact of interest rate rises starts to bite. So, we want to make sure we have enough cash to get through that period. We will see some improvement in the back half of 2023 — modest improvement, you know, maybe to the levels that we're at now,” he said.

“The visibility is not positive. But we do have the balance sheet and the cost structure to be able to get through this. We're not expecting wonderful things from anybody for the next one to two years. But we're going to be okay as we get out the other end of this.”