IPSCO Expects Better Third Quarter After Second Quarter Seasonal Downturn

Phillips Describes Marketing and Production Strategy 

Regina, Saskatchewan, May 31, 2000 -- IPSCO Inc. (NYSE: IPS) Speaking to financial analysts at a steel industry seminar Roger Phillips, President and Chief Executive Officer of IPSCO Inc., today outlined the company's marketing and production strategy, which he then put into the context of both the short and mid-term outlook for IPSCO's earnings.

Phillips said that IPSCO's flat rolled steel products were aimed at applications where the steel fulfilled a structural purpose rather than acting merely as a protective covering. Thus the company's steel found its way into bridges, machinery and equipment, storage tanks, pipe, hollow structural tubing, trucks, barges, ships, rail cars, to name a few, as opposed to the exteriors of cars and appliances. Accordingly IPSCO produced and sold discrete plate, cut-to-length plate from coils, coil in plate and heavier sheet thicknesses, and cut-to-length sheet in heavier thicknesses, all of which were suited for these applications. IPSCO is not equipped to produce thinner flat-rolled steel in either hot or cold rolled form, he said. Customers using flat rolled steel in such structurally oriented applications looked to steel that would lower their fabricating costs, he said. "Theirs is a total cost minimization exercise, not a low purchase price objective" he claimed. Customers need large pieces to cut down on joining costs, material that is easy to weld, high strengths to decrease the amount of steel needed, good corrosion and abrasion resistance to prolong the useful life of their products, and good surfaces to make coating easier. In addition, with the advent of laser cutting of steel they need material that can be cut quickly and cleanly.

Phillips said IPSCO directed a large part of its R & D effort to improving these characteristics and research engineers and technicians were available to assist its customers. He said that IPSCO's unique manufacturing approach, using electric furnaces to recycle scrap in combination with full width slab casting and Steckel mills, feeding in-line plate finishing equipment meant lower costs, even for wide coil and plate products. The combination of three strategically placed steelworks (Regina, Saskatchewan; Montpelier, Iowa; and Mobile, Alabama) with five coil processing facilities acting as mill satellites, three of which included wide temper mills, meant that steels as strong as 110,000 pounds per square inch minimum yield strengths could be produced without costly furnace treatment. This compared to 36,000 psi steel, the standard discrete plate offered by steel producers. "You get over three times the strength for a relatively small premium".

"IPSCO is a growth steel company where you should expect long term growth in earnings rather than just higher earnings due to cost reduction programs or improvements of a cyclical nature", Phillips pointed out. He said that the company's two operating steelworks were currently producing at a combined annual rate of 2 million tons. "With movement up the experience ladder at Montpelier and the startup of the Mobile steelworks one can reasonably expect that number to rise to a 2.8 million ton annual capability during next year, exceed 3 million tons in 2002, and reach nameplate capacity of 3.5 million tons by 2003," he said, noting that all the financing was in place to complete construction and see these numbers achieved.

Because these facilities can produce either coil or discrete plate on the same rolling mills he said there was no danger in swamping the market. "We believe our mills' products serve a 30 million ton annual North American merchant market that will rise to 37 million tons by 2010, assuming two percent annual growth. There will be plenty of demand for us. If the opportunities provided by growth alone aren't enough our inherently low costs should displace imports and less sophisticated or higher cost production. In addition some of our own further fabricating facilities have not yet reached peak production capabilities," Phillips said, "and they will need more steel down the road."

"I know investors want to know what we can do for them tomorrow, not yesterday, but they should find comfort in the fact that IPSCO's compound annual growth in revenues was 14 percent over the 1993 to 1999 period while net income and EBITDA rose 24 percent per annum, and fully diluted earnings per share rose 16 percent annually. I believe that's a pretty good track record," he said.

"Given this strategy what is the medium and short term outlook?" Phillips then asked rhetorically. "The Asian crisis forced the cancellation or postponement of many new steel plants worldwide. Although steel demand faltered as well, it has picked up once again whereas new capacity can't be turned on as quickly. As steel demand has grown globally post-crisis, idled capacity has been put back on line, and we are now at the point where world production is at or close to its effective maximum, according to observers. While production may have gotten slightly ahead of demand resulting in increased imports of some products to the U.S. and Canada, and consequently some price pressures, this looks to be what will turn out to be a brief phenomenon. The situation in other markets seems to be one of increasing demand and generally low inventories."

Phillips pointed out that IPSCO is both a buyer and seller of steel and thus possesses "real time" market intelligence. He said that hot rolled coil price increases announced by many producers for the third quarter had either been withdrawn or postponed. "But this does not mean the sky is falling down. The decreases reflect what seems to be a temporary oversupply of one product line, rather than a drop in demand. And, of course, the earlier price increases of late 1999 and early 2000 remain in place."

Turning to IPSCO's specific outlook Phillips pointed out that the first quarter of 2000 had seen an improved financial result compared to a year earlier, despite having completed a significant order for large diameter pipe which factored into the 1999 results. Improved performance at the Montpelier steelworks and a reawakened oil and gas drilling industry, with the resultant higher demand for well casings and related tubular products, more than made up the difference, he said.

Normally the second quarter sees a drop off in profitability from the first, as spring thaw conditions inhibit drilling activity in Canada and higher profit oil country goods are replaced by lower profit items. At the start of the second quarter IPSCO had expected that higher overall demand would nullify this normal seasonal drop. In the event, however, Phillips said that a somewhat slower than expected start to drilling after "spring breakup," due to weather conditions, led him to believe that the second quarter would record a lower profit than the first. "This is always a hard one to call. Oil country goods are stocked by us and the customer purchases his needs well by well, so it will go down to the wire." Sales of small diameter line pipe in Canada for the second quarter will also be down due to these same weather conditions and overstocking by distributors, the latter problem now rapidly disappearing as end customer usage increases. Another factor affecting second quarter profits may be exchange losses. "Our earnings which are expressed in U.S. dollars could be lower than expected because of a weaker Canadian dollar," Phillips said.

For the balance of the year the positives seem to outweigh negatives, he said.

"Despite the softening in hot rolled coil prices they will still be above the previous year. Further, as a coil purchaser we benefit as long as our added value products don't suffer a similar fate. Scrap prices are under downward pressure, helping our costs. Montpelier continues to demonstrate cost and production improvements. Except for large diameter pipe both order rate inflow and booked business remain in excellent shape. Gas and oil exploration activities have regained strength. Sales of oil country tubulars and small diameter line pipe should contribute more to the bottom line as the year progresses, especially in Canada where IPSCO is the dominant supplier."

"Looking forward to the startup of the Mobile steelworks we are doing business out of the Montpelier steelworks with customers in the Gulf area and incurring higher freight costs than will apply when production is switched over to the new plant. This means that we will make less than optimum profit on part of our last half sales but this is only prudent and will guarantee us a good initial customer base for Mobile."

"All this being said we expect overall better numbers in the last half, barring a major recession," Phillips said. "I caution you, however, not to try to measure us by quarter to quarter results. It makes more sense for our shareholders that we do everything to permit the best possible startup for Mobile. In that regard you should note that we are still on budget and on schedule for first quarter production".

This news release contains forward looking information with respect to IPSCO's operations and beliefs. Actual results may differ from these forward looking statements due to numerous factors, including estimated time of completion of equipment installation, cost of installation, realized prices, specific facility production, input costs, transportation costs, and potential markets for the materials produced. These and other factors are outlined in IPSCO's regulatory filings with the Securities and Exchange Commission, including those on IPSCO's Annual Report for 1999, its MD&A and Form 40-F.

Company Contact:
Roger Phillips
President and Chief Executive Officer
Tel: 306-924-7262
or
Ed Tiefenbach
Senior Vice President and Chief Financial Officer
Tel: 306-924-7262

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