Stelco Inc. reported net earnings of $40 million on net sales revenue of $888 million for the quarter and net earnings of $89 million on net sales revenue of $1,856 million for the six months ended June 30, 2005.

Second Quarter Results—The $40 million net earnings ($0.39 per common share) compares to net earnings of $42 million ($0.41 per common share) for the second quarter of 2004. Net earnings would have been lower than reported but for four non-recurring items, which had a positive impact on net earnings for the period. These items were (in pre-tax figures) a $20 million gain on the sale of the plate mill assets; $14 million for the balance of an insurance claim recovery related to a June 2004 blast furnace outage; a $4 million gain on the sale of the company's interest in Camrose Pipe; and a $4 million gain on the sale of the Welland Pipe U and O pipe mill. Compared to second quarter 2004, earnings were negatively affected by decreased shipments and higher costs, particularly at Norambar and the Manufactured Products segment, and reduced Integrated Steel finishing mills production, partly offset by higher selling prices.

The $888 million net sales revenue compares to $881 million for the same period last year. Costs were $799 million compared to $779 million for the same quarter in 2004.

Production was 1,297,000 semi-finished tons compared to 1,327,000 semi-finished tons produced during the same period in 2004. Shipments totaled 1,125,000 net tons compared to 1,249,000 net tons during the same period in 2004.

Six Month Results—The $89 million net earnings ($0.87 per common share) compares to net earnings of $5 million ($0.05 per common share) for the same period in 2004.

Sales amounted to $1,856 million, a 12% increase over the $1,650 million recorded for the first six months of 2004. This increase was attributable to such factors as the renewal of customer contracts at substantially higher prices, improved market demand (which had the effect of raising spot prices in the first quarter), and selling price surcharges implemented to cover high raw material and energy costs in the first quarter.

Costs were $1,620 million compared to $1,514 million for the first half of 2004. The increase in costs was attributable to such factors as higher raw material and energy costs, particularly for scrap, coal, iron ore, natural gas and electricity; higher spending for repairs and maintenance and supplies; reduced output required to control steel inventories; and the increased cost of hot roll as raw materials for the Manufactured Products segment of the business.

Production was 2,553,000 semi-finished tons compared to 2,693,000 semi-finished tons produced during the first half of 2004. Shipments totaled 2,325,000 net tons, compared to 2,515,000 net tons during the first half of 2004.

Financial Results—As at June 30, 2005, the corporation's net liquidity position was $407 million, consisting of $26 million of cash and cash equivalents, including restricted cash, plus $472 million of available lines of credit, less $91 million of drawings on lines of credit. At December 31, 2004, net liquidity was $284 million, consisting of $43 million of cash and cash equivalents, including restricted cash, plus $456 million of available lines of credit less $215 million of drawings on lines of credit.

During the quarter the corporation generated $43 million of cash, primarily due to cash earnings before working capital and proceeds from the sale of its 40% interest in Camrose pipe, partly offset by expenditures for capital assets, primarily consisting of $30 million related to the Lake Erie Phase II hot strip mill upgrade, and working capital changes. In the year-earlier period, $2 million of cash was generated.

The corporation noted that steel market selling prices have been very volatile and are highly dependent on North American and worldwide steel demand and other factors beyond Stelco's control. For example, the current spot price for hot roll coils, Stelco's largest product category, has declined approximately 26% since April 2005. Stelco also indicated that future financial results will be highly dependent on the strength of North American steel markets and on the direction of commodity raw material and energy input costs.

North American steel producers have reduced production levels in the second quarter of 2005, attempting to better balance supply with demand, which ultimately may stabilize steel pricing. Following the seasonal shutdowns, automotive demand is forecast to remain constant through the balance of the third quarter of 2005. Spot market prices appear to be stabilizing due to lower steel production, and reduced customer inventory levels.

Stelco expects that third quarter 2005 results will be significantly lower than second quarter and that there will be increased drawings on the Stelco Inc. credit facility. In the fourth quarter, as a result of a planned shutdown of the Lake Erie hot strip mill to install components related to the Phase II upgrade, significant shipments of slabs are planned. There is a risk that market demand may not support the projected level of slab sales. While there is currently a court order outstanding that prevents a strike by Local 8782, there is a risk that delivery of the 90-day notice from Local 8782 could result in disruptions to the corporation's business.

Comments—Courtney Pratt, Stelco President and CEO, said, "Our results reflect the softening in North American demand and pricing that began in the third quarter of last year and that has continued well into 2005.

"We've said that Stelco could not base its future upon steel prices remaining at historically high levels. We've believed from the outset of our restructuring process that the only way to ensure a positive long-term future for the Company is to make it competitive through all stages of the market cycle.

"That's what the four-point strategy announced one year ago and the restructuring plan outline filed last month are designed to achieve. I urge all stakeholders to work together at this crucial stage of the restructuring process to ensure that our shared goal of a viable, competitive and successful Stelco can be realized."

With respect to Stelco's recently released restructuring plan outline, Mr. Pratt noted that to date the plan outline has not yet been endorsed by any stakeholder group.

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.