Mark D. Millett, president and chief executive officer at Steel Dynamics Inc. (SDI), cites robust steel demand and product pricing momentum in the first quarter of the year as contributing to the Fort Wayne, Indiana-based electric arc furnace (EAF) steelmaker’s record performance during the quarter. "Higher flat-roll steel selling values were the most significant drivers for our record quarterly earnings, as demand strength and historically low customer inventories throughout the supply chain supported prices. Domestic steel consumption remained strong from the automotive, construction and industrial sectors, and energy has shown some signs of rebounding,” he says.
The company has reported net sales of $3.5 billion and net income of $431 million, or $2.03 per diluted share. Excluding costs of approximately $20 million, or 7 cents per diluted share (net of capitalized interest), associated with construction of the company's Sinton, Texas, flat-roll steel mill, SDI’s first quarter 2021 adjusted net income was $445 million, or $2.10 per diluted share.
Comparatively, prior-year first quarter net sales were $2.6 billion, with net income of $187 million, or 88 cents per diluted share. The company's sequential fourth quarter 2020 earnings were 89 cents per diluted share, and adjusted earnings were 97 cents per diluted share, excluding refinancing costs of 4 cents per diluted share, construction costs related to the Texas steel mill of 5 cents per diluted share, a noncash asset impairment charge of 6 cents per diluted share and a tax benefit related to the reduction of a valuation allowance of 6 cents per diluted share.
"The team delivered a tremendous first quarter performance, achieving record quarterly net sales, operating income and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization)," Millett says. "Our first quarter 2021 operating income increased 130 percent sequentially to $594 million, with adjusted EBITDA of $664 million. Numerous individual operating and financial records were attained –a truly amazing achievement and a testament to the passion and dedication of our team.”
Millett says SDI’s first-quarter operating income from its steel operations was a record $641 million, while its metals recycling operations, which operate under the OmniSource name, nearly doubled its earnings sequentially. He cites improved domestic steel mill utilization for increased ferrous scrap demand.
“Our steel fabrication operations also displayed a solid performance, achieving record quarterly shipments and ending March with a record order backlog that is over 50 percent higher than our previous high point, as we head into the summer construction season,” Millett says.
In a news release announcing its quarterly earnings, SDI says its steel operations’ record operating income is because of significant metal spread expansion and near-record steel shipments. Sales prices for its flat-roll and strong long product steel more than offset higher scrap input costs, with the average external product selling price for the company's steel operations increasing $227 sequentially to $1,041 per ton, while the average ferrous scrap cost per ton melted at the company's steel mills increased $93 sequentially to $372 per ton.
As domestic steel production rose in the quarter, demand and pricing for recycled scrap “significantly improved,” SDI says. Prime ferrous scrap pricing indices increased approximately $170 per gross ton during the first quarter, nearly doubling operating income from the company's metals recycling operations to $54 million compared with the sequential fourth quarter.
SDI’s steel fabrication operations reported operating income of $10 million in the first quarter, which was more than 60 percent lower than the sequential fourth-quarter results. Notwithstanding achieving record quarterly shipments, earnings declined as significantly higher steel input costs more than offset higher realized selling values in light of the timing of matching a six-month backlog to more current higher-priced steel inputs, the company says. “Lower earnings are not a reflection of weaker demand, as order activity is extremely strong and customers continue to be optimistic concerning nonresidential construction projects,” SDI says. At 85 percent higher than its previous peak, the company says its steel fabrication order backlog is at a record level at the end of March. Steel joist and deck product pricing also has strengthened to record levels in light of strong demand and higher steel input costs.
Looking forward, Millett says, "We remain confident that market conditions are in place to benefit the domestic steel industry in 2021 and beyond. While global economies are still recovering from the shock of COVID-19, we are seeing strong steel demand coupled with extremely low customer steel inventory throughout the supply chain. The automotive sector has experienced the strongest recovery, despite the electronic chip shortage, and the construction, equipment and transportation sectors are also strong. Our order entry continues to be robust across our businesses, and when coupled with historically low inventories, supports continued strong steel selling values. We believe this momentum will continue throughout the year and that our second quarter 2021 earnings will be even higher than our record first quarter 2021 results. We also believe U.S. trade policies and existing steel trade cases will continue to moderate steel imports. Based on strong domestic steel fundamentals and customer optimism, we continue to be confident regarding North American steel market dynamics. This positive environment coupled with our strategic growth initiatives provide firm drivers for our further growth in the coming years.”
Millett mentions that SDI and its customers are excited about the company’s investment in its new Sinton flat-roll steel mill, saying, “It represents transformational competitively advantaged strategic growth with associated long-term value creation for all of our stakeholders.”
He says the facility will have product capabilities that exceed those of existing EAF flat-roll steel producers, enabling it to compete “even more effectively with the higher-carbon-emitting integrated steel model and foreign competition, providing a broader steel portfolio and a climate-conscious supply option for our customers.”
Regarding construction on the facility, he says it has been going well and remains within the projected cost of $1.9 billion. Steel production at the facility is expected to begin in late summer, Millett adds.
“We have targeted specific regional steel consuming markets and are competitively located close to these areas, with an opportunity to also displace foreign steel imports,” he says of the Sinton facility. “We have executed agreements with several customers to co-locate on our site, currently representing over 1.3 million tons of annual steel consumption and processing capabilities, and we are still in discussion with others. Our recent acquisition of a Mexican scrap company is also providing a key support for Sinton's ferrous scrap needs.”
Millett says SDI also plans to add four additional value-added flat-roll steel coating lines comprised of two paint lines and two galvanizing lines with Galvalume coating capability that it expects to begin operating in the second half of 2022. “The sites for these lines are still to be determined, but two lines comprised of one paint line and one galvanizing line will be located in the southern U.S. to provide Sinton with the same diversification and higher margin product capabilities as our Butler and Columbus Flat Roll Steel divisions,” Millett says. “The estimated investment for these two lines is $225 million, with a combined annual coating capacity of 540,000 tons. The other two lines will have the same annual coating capacity with an estimated investment between $175 million and $200 million. They will be located in the Midwest to support the growing demand for coated flat-roll steel products and to further increase the diversification and cash generation capacity of our existing Midwest flat-roll steel operations.”