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SDI posts fourth-best year in 2020

Operating income from its metals recycling platform, OmniSource, increased to $45 million in 2020 compared with $28 million in 2019.

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January 26, 2021

Electric arc furnace (EAF) steelmaker Steel Dynamics Inc. (SDI), headquartered in Fort Wayne, Indiana, has reported net sales of $2.6 billion and net income of $188 million, or 89 cents per diluted share, for the fourth quarter of 2020. Excluding the impact from additional financing costs ($11 million, or 4 cents per diluted share); costs associated with the construction of its Sinton, Texas, steel mill ($14 million, or 5 cents per diluted share); noncash impairment charges ($17 million net of non-controlling interest, or 6 cents per diluted share; and a tax benefit related to the reduction of a valuation allowance ($13 million net of noncontrolling interest, or 6 cents per diluted share), the company's fourth-quarter adjusted net income was $205 million, or 97 cents per diluted share.

The company’s sequential third-quarter 2020 earnings totaled 47 cents per diluted share, while its adjusted earnings were 51 cents per diluted share, excluding the impact of construction costs related to the Texas steel mill of 4 cents per diluted share. Prior-year fourth-quarter earnings were 56 cents per diluted share, and adjusted earnings were 62 cents per diluted share, excluding refinancing costs of 1 cent per diluted share and lower earnings of approximately 5 cents per diluted share associated with planned maintenance outages at the company's two flat roll steel mills.

"The team delivered a tremendous operational and financial performance during 2020 within an unprecedented health and economic crisis, achieving strong net sales of $9.6 billion, operating income of $847 million and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $1.2 billion," Mark D. Millett, SDI president and chief executive officer, says. "Numerous individual operating and financial records were also attained during the year—an amazing achievement during a period in which many steel-consuming businesses were temporarily idled or severely impacted by the social and economic effects of the coronavirus pandemic.”

Millett says SDI achieved cash flow from operations of $987 million for the year, ending 2020 with more than $2.5 billion in liquidity.

"2020 was a period of shifting steel and raw material supply and demand dynamics," Millett adds. "While domestic steel demand and raw material supply were robust early in the year, the pandemic significantly reduced steel consumption and scrap generation during the second quarter 2020 as the automotive sector and its supply chain temporarily closed. As a result, a significant amount of higher cost domestic steel production was idled.”

Millett says steel demand quickly recovered, however, as many U.S. states lifted pandemic-related restrictions and manufacturers restarted operations midyear. “As demand improved in the second half of 2020, some domestic steel production remained idled,” he continues. “When coupled with extremely low steel inventory levels throughout the supply chain, flat-roll steel index prices increased over $500 per ton from August through the end of the year.”

He attributes market share gains and the “symbiotic relationships” among SDI’s three operating platforms for strong companywide performance. "Operating income from our steel operations was $906 million in 2020 compared to $1 billion in 2019. We were able to achieve annual steel shipments that were only 1 percent below our record-high attained in 2019. Operating income from our metals recycling platform, OmniSource, increased to $45 million in 2020 compared to $28 million in 2019. Finally, our steel fabrication operations achieved record operating income of $121 million and record shipments as the construction market remained strong throughout the year," Millett says.

Quarterly comparison

Fourth-quarter 2020 operating income for the SDI’s steel operations was $298 million, more than double sequential third-quarter results, based on significant flat-roll steel metal spread expansion as strong demand and tight supply dynamics drove selling values, according to the company. The fourth-quarter 2020 average external product selling price for its total steel operations increased $80 sequentially to $814 per ton. The average ferrous scrap cost per ton melted at SDI’s steel mills only increased $20 sequentially to $279 per ton, according to the company. 

As domestic steel production increased during the quarter, demand for ferrous scrap and scrap selling values also increased. As a result, fourth-quarter operating income from SDI’s metals recycling operations increased 75 percent to $27 million compared with the sequential quarter. 

“Based on strong domestic steel fundamentals, we are optimistic regarding the North American steel market dynamics and believe steel consumption will experience growth this year. We expect to see continued steel price strength and strong customer demand in 2021.” -- Mark Millett, SDI president and CEO

SDI says its steel fabrication operations had operating income of $25 million in the fourth quarter compared with the record-high of $39 million in the sequential quarter. Earnings declined in light of seasonally lower shipments and metal spread compression as product pricing declined, while steel input costs increased. The steel fabrication platform's order backlog remains strong, and customers remain optimistic concerning construction activity, the company states.

Yearly comparison

Annual 2020 net income was $551 million, or $2.59 per diluted share, with net sales of $9.6 billion. This compares with 2019 net income of $671 million, or $3.04 per diluted share, with net sales of $10.5 billon. The company's 2020 adjusted net income was $603 million, or $2.84 per diluted share.

Annual 2020 net sales declined 8 percent, and operating income declined 14 percent to $847 million relative to 2019, SDI says. Lower earnings were primarily the result of steel metal spread compression, as lower steel prices in the first half of 2020 caused overall average annual steel selling values to decline more than average ferrous scrap costs.

Compared with 2019, SDI says the average 2020 external product selling price for the company's steel operations decreased $67 to $770 per ton, while the average ferrous scrap cost per ton melted decreased $25 to $268 per ton. 

SDI reports generating $987 million in cash flow during 2020 and investing $1.2 billion in capital investments, with the new Sinton steel mill growth project to represent $928 million. 

Outlook   

"We entered 2020 in a position of strength with ample cash and available liquidity, and we remain in a position of strength as we head into 2021," Millett says.

Regarding the new steel mill in Texas, he says, “We are excited about this transformational strategic project and the associated long-term value creation it will bring through geographic and value-added product diversification. This facility is designed to have product size and quality capabilities beyond that of existing EAF flat roll steel producers, competing even more effectively with the integrated steel model and foreign competition, as well as providing a much more environmentally friendly steel production alternative for our customers.”

He adds, “Construction is going well and remains within our expected project cost of $1.9 billion, with plans still in place to commence operations mid-year 2021.”

Millett says SDI has targeted specific regional steel-consuming markets. “Our facility is located and designed to have a meaningful competitive advantage in these regions and in the displacement of imports. We have signed long-term agreements with several customers to co-locate on our site, and we are still in discussions with others. We plan to have over 1 million tons of annual steel-consuming and processing capability from on-site customers.”

He describes steel demand as strong, adding, "The automotive sector has experienced the strongest recovery, and the construction sector remains resilient. Customers are positive concerning the business outlook for 2021. We are seeing pent-up demand as steel service center and end-user inventories are still extremely low compared to historical norms.”

Millett says SDI also believes trade agreements and existing steel trade cases will moderate steel imports. “Based on strong domestic steel fundamentals, we are optimistic regarding the North American steel market dynamics and believe steel consumption will experience growth this year. We expect to see continued steel price strength and strong customer demand in 2021.”