By Frank Pingue
TORONTO (Reuters) - Dofasco Inc.
The Hamilton, Ontario-based company decided to abandon plans for the U.S. steel plant that was to have aimed at serving the automotive industry, saying the project no longer met its investment criteria.
Last year, Dofasco said it would start building the
500,000-tonne-a-year facility by the end of 2004. But
disagreements with Luxembourg-based Arcelor
"There were number of factors but they all are ultimately expressed in terms of a return," Don Pether, Dofasco's chief executive said in a conference call. "And we do not proceed in putting facilities in place unless we can return on that cost of capital, and in this case it was below that."
While the company did not offer hard numbers for 2005, it said its first quarter will be hurt by various issues ranging from a strong Canadian dollar and high energy costs.
Dofasco expects results from its Steel Operations segment, which includes its key Hamilton facility, will decline in the first quarter due to the high level of customer inventories.
Gallatin Steel, its joint venture in Kentucky, is expected to ship more steel in the first quarter than in the fourth, but take in less revenue because of lower U.S. spot prices.
"For Dofasco in particular, people were probably expecting more in the first quarter because they have all these contracts that were being rolled over at higher prices and that should've offset the decline on the spot market side," said Justin Wu, an analyst at GMP Securities Ltd.
"And because Dofasco is more heavily weighted on contract markets than spot, you would've thought that the upcoming quarters would've been fairly strong. So maybe there is a little bit of disappointment there."
The market punished Dofasco's shares, which closed down C$1.95, or 4.4 percent, at C$42.05 on the Toronto Stock Exchange, while the bulk of other Canadian steel producers ended higher.
PROFIT SURGES
Dofasco said it earned C$96.8 million ($77 million), or C$1.25 a share, in the latest quarter as it took advantage of healthy demand and strong prices that have cushioned industry profits for the past year.
The results were up from a profit of C$2.4 million, or 3 Canadian cents a share, in the year-before period, when the company was hit by a one-time charge for cutting its stake in Quebec Cartier Mining Co.
The profit fell short of earnings expectations of C$1.28 a share, according to Reuters Estimates.
Revenue rose to C$1.1 billion from C$871 million.
Dofasco's Steel Operations shipped 4.24 million tons in the quarter, compared with 4.09 million tons a year earlier.
The company said shipments were unseasonably high as customers built inventories in anticipation of higher spot prices in the first quarter.
Gallatin Steel shipped 374,000 tons in the quarter, down nearly 9 percent due to what Dofasco called seasonal weakness.
($1=$1.25 Canadian)
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