Financial performance

Sales review

The segment’s revenues from steel product sales decreased due to lower sales volumes (down 24.8%) and the impact of lower sales prices (down 11.1%). Output declined mainly due to weak tubular and rail markets, along with extended planned outages in 2016.

Revenues from sales of construction products fell by 26.9%, primarily due to lower sales prices (down 14.7%) and sales volumes (down 12.2%). The fall in sales volumes was attributable to reduced demand for rod and bar products, as well as to the disposal of a structural tubing facility in Portland in March 2015.

Railway product revenues declined by 46.7%, driven by a 38.0% drop in volumes and a 8.7% reduction in average prices, in line with the general price trend in the US steel market. The rail market fundamentals were less positive, given moderate CAPEX of the Class-1 railroads due to lower traffic and a surplus inventory of rails.

Revenues from flat­-rolled products fell, mainly due to lower prices (down 9.1%) and sales volumes (down 6.0%), which was caused by deteriorating conditions in the segment.

Revenues from tubular product sales decreased by 42.1%, primarily due to lower sales volumes (down 34.4%) and sales prices (down 7.7%). The drop in sales volumes was driven by weaker demand for OCTG, which in turn was caused by a slowdown in drilling activities due to the slump in oil prices.

Steel, North America segment revenues by product
2016 2015 Change, %
US$ million % of total segment revenues US$ million % of total segment revenues
Steel products 1,350 92.2 2,105 92.7 (35.9)
Construction products Includes beams, rebar and structural tubing 158 10.8 216 9.5 (26.9)
Railway products Includes rails and wheels 232 15.8 435 19.2 (46.7)
Flat-rolled products Includes commodity plate, specialty plate and other flat-rolled products 372 25.4 438 19.3 (15.1)
Tubular products Includes large-diameter line pipes, ERW pipes and casing, seamless pipes, casing and tubing, and other tubular products 588 40.2 1,016 44.7 (42.1)
Other revenues Includes scrap and services 114 7.8 165 7.3 (30.9)
Total 1,464 100.0 2,270 100.0 (35.5)

Steel, North America segment cost of revenues

The Steel, North America segment’s cost of revenues fell by 37.1% year-on-year in 2016. The main drivers were:

  • Raw material costs dropped by 39.3%, primarily due to lower consumption of scrap, ferroalloys and other raw materials. The main reasons for this were lower volumes of crude steel and finished products (primarily tubular products and rails), as well as cost-cutting initiatives, which reduced consumption.
  • Costs of semi-finished products fell by 44.6%, amid lower production volumes of tubular products and a decline in prices for purchased slab.
  • Auxiliary material costs decreased by 37.0%, as production volumes of crude steel and finished products dropped compared with 2015 and a cost-cutting plan was implemented.
  • Service costs were down by 33.8%, as production volumes in 2016 fell year-on-year.
  • Energy costs fell, due to a reduction in energy consumption resulting from a drop in production volumes and lower tariffs for energy and natural gas.
  • Other costs decreased primarily due to changes in allowances for inventories on the back of lower inventory write-offs and slow-moving adjustments as a result of reduced inventory volumes, accompanied by the decline in transportation costs and changes in goods for resale.
Steel, North America segment cost of revenues
2016 2015 Change, %
US$ million % of total segment revenues US$ million % of total segment revenues
Cost of revenues 1,243 84.9 1,977 87.1 (37.1)
Raw materials 390 26.6 643 28.3 (39.3)
Semi-finished products 196 13.4 354 15.6 (44.6)
Auxiliary materials 102 7.0 162 7.1 (37.0)
Services 106 7.2 160 7.0 (33.8)
Staff costs 196 13.4 254 11.2 (22.8)
Depreciation 100 6.8 107 4.7 (6.5)
Energy 85 5.8 106 4.7 (19.8)
Other Includes primarily allowances for inventories, goods for resale, certain taxes, transportation and inter-segment unrealised profit. 68 4.7 191 8.5 (64.4)

Steel, North America segment gross profit

The Steel, North America segment’s gross profit totalled US$221 million in 2016, down from US$293 million in 2015. The decline was primarily due to lower sales volumes amid the downturn on the OCTG and rail markets.