Stelco Inc. reported record net earnings of $49 million on net sales revenue of $968 million for the first quarter ended March 31, 2005.

The $49 million record level of first quarter earnings ($0.48 per common share) compares to a net loss of $37 million ($0.36 per common share) in the first quarter of 2004 and net earnings of $1 million ($0.01 per common share) in the fourth quarter of 2004.

Net sales revenue of $968 million compares to $769 million for the same period in 2004. The 26% increase was largely attributable to the renewal of customer contracts at substantially higher prices and increased spot market prices due to improved market demand, as well as selling price surcharges implemented to cover higher raw material and energy costs.

Stelco’s cost of sales was $821 million in the first quarter, which compares to $735 million for the same quarter in 2004. This 12% increase was attributable to such factors as the rise in raw material and energy costs (including scrap, coal, coke, natural gas and iron ore); the increased cost of hot roll and rod as raw materials for Stelco's manufactured products business; higher employment costs, particularly in the areas of pensions and health care; higher spending for repairs, maintenance and supplies; and reduced semi-finished steel production in Hamilton.

First quarter production of 1,256,000 semi-finished tons compares to 1,366,000 semi-finished tons produced during the same period in 2004. Shipments totaled 1,200,000 net tons, which compares to 1,266,000 net tons shipped during the first quarter of 2004.

As at March 31, 2005, Stelco's consolidated net liquidity position was $346 million compared to $284 million as at December 31, 2004 and $239 million as at March 31, 2004. The net liquidity position of the applicants involved in proceedings under the Companies' Creditors Arrangement Act was $297 million at March 31, 2005 compared to $237 million at December 31, 2004, and $196 million at March 31, 2004.

Stelco generated net cash of $65 million during the first quarter of 2005 — a $96 million improvement from the $31 million consumed in the first quarter of 2004. The strength of operating earnings, driven by high selling prices, accounted for the majority of the improvement.

Courtney Pratt, Stelco's President and CEO, said, "Stelco continued to benefit from robust market conditions and steel prices during the first quarter. Positive factors shaping our outlook for the balance of the year include the likely continuation of strong steel prices, the stability provided by our contract customer base, and the strong raw materials position we enjoy through our ownership of iron ore mining properties, in-house production of coke, and coal purchase contracts.

"I hope that all stakeholders will take advantage of our positive performance to work towards our shared goal of a viable and competitive Stelco rather than allow this opportunity to pass."

Guidance—On March 8, 2005, Stelco provided guidance with respect to 2005 operating earnings. At that time the Corporation advised that 2005 operating earnings were estimated to be in the range of $350 to $400 million. It indicated that this estimate included the impact of a shutdown of the Lake Erie hot strip mill, but did not include any restructuring-related costs or the impact of the possible sale of any of its subsidiary companies. The guidance also included assumptions around a strong first quarter, with spot market prices declining somewhat over the balance of the year.

Operating earnings in the first quarter of 2005 were strong at $118 million, in line with the estimate in the guidance provided on March 8, 2005. The corporation expects solid second quarter performance although operating earnings as anticipated are expected to be lower than record first quarter results. Although the corporation expects a significant increase in operating earnings in 2005, given the current dynamics of global steel markets and the effect on steel prices, the markets have become more difficult to predict. Issues include fluctuating spot market pricing, raw materials costs and the currently uncertain automotive sector. The corporation is therefore reviewing its March 8, 2005 guidance for the second half of the year and expects to reaffirm or amend its full year's guidance by the end of May 2005.

Stelco Inc. is a large, diversified steel producer involved in major segments of the steel industry through its integrated steel business, minimills, and manufactured products businesses.