Schnitzer Steel Industries Inc., Portland, Oregon, says it saw the steepest decline in ferrous scrap prices since 2008 in the second quarter of its fiscal 2015. The company reports a loss of $196 million in the second quarter of fiscal 2015 compared with a profit of $1.79 million for the same time last year.
Schnitzer says it saw ferrous scrap prices decline as much as $100 per ton, a 30 percent drop from the previous quarter. The company attributed the decline to softer global steel markets arising from overproduction, a strong U.S. dollar, lower iron ore prices and weaker demand by end markets.
The company also points out the negative impact of harsh winter weather in the Northeast and Midwest, which affected retail sales of the company’s Auto Parts Business and supply flows in its Metals Recycling Business, and the negative impact of the labor slowdown at the West Coast ports.
Predicting a challenging outlook for the year, Schnitzer announced two strategic initiatives:
- a cost-reduction, capacity-reduction and productivity-improvement initiative which, in the aggregate, the company says will improve financial performance by $60 million annually by the end of 2016; and
- the integration of its Auto Parts and Metals Recycling Businesses into a single division by the end of fiscal 2015, which is intended to further optimize the efficiencies in the company’s operating platform, enable additional synergies to be captured throughout its supply chain and global sales channel and more effectively leverage its shared services platform, according to the company.
“In the face of steep declines in commodity prices, we are taking deliberate and substantial steps to continue to lower our operating costs and generate positive cash flow,” says Tamara Lundgren, president and CEO of Schnitzer. “The strategic cost-reduction actions currently underway are expected to deliver additional annual benefits of approximately $60 million. This comes in addition to approximately $65 million in cost savings and productivity benefits we have delivered since fiscal 2013.”
She adds, “The new strategic actions form part of a longer-term plan that we expect will lead to improved financial performance and will position us to emerge from this trough in the cycle with greater operating leverage.”
The company says it expects about half of the roughly $60 million in targeted savings to come from the company’s metals recycling business through a combination of equipment idling, including reduced depreciation and SG&A (selling, general and administrative) reductions. The company says it expects another 40 percent in savings to come from Schnitzer’s auto parts business through the closing of stores.
Schnitzer reports ferrous scrap sales volumes of 750,000 tons for the second quarter, a 27 percent decline from same time last year and a 20 percent drop from the prior quarter. The company attributes much of the drop to weaker export demand, the impact of the lower price environment on scrap supply and the timing of shipments.
Nonferrous sales volumes of 108 million pounds declined 20 percent from the prior year’s second quarter. Both the effects of severe weather in the Northeast and the labor slowdown at the West Coast ports adversely affected shipments during the second quarter, Schnitzer says.
Average ferrous selling prices declined nearly $70 per ton, or 19 percent, compared with the prior year’s second quarter and $33 per ton, or 10 percent, from first quarter levels in light of a combination of weaker export demand and excess steel production globally. Nonferrous prices declined more moderately during the same periods, the company adds.
Adjusted operating loss of $2 per ton in the second quarter resulted from a combination of sharply reduced average selling prices and lower shipped volumes. Because of the rapid rate of decline in market prices, average inventory costs did not decline as quickly as selling prices, which led to an estimated $17 per ton adverse impact of average inventory accounting as well as an adverse net realizable value adjustment to inventory of $2 million, Schnitzer says. The company says the strategic actions it started during the second quarter are expected to benefit operating performance in the fourth quarter of fiscal 2015 and into fiscal 2016.