Schnitzer Reports Earnings for Quarter

Schnitzer Steel Industries, Inc. reported net income of $8.4 million on revenues of $124.7 million for the second quarter, ended February 28, 2003.

In comparison, the company reported a net loss of $1.1 million on revenues of $78.4 million for the same quarter last year.

For the first six months of the fiscal year, the company reported net income of $11.3 million on revenues of $215.3 million.

"Worldwide recycled metal markets continued to rebound during the second quarter of fiscal 2003, which contributed to higher selling prices as well as record quarterly sales volumes for our wholly-owned metals recycling business," said Robert Philip, president and CEO. "Our joint ventures in the metals recycling business also benefited from the same market forces and reported improved profits for the second quarter. The strength in the global ferrous recycled metal markets has been largely driven by strong Asian demand, primarily from China, coupled with reduced market supplies from countries of the former Soviet Union. The former Soviet countries had flooded the export markets with unusually high sales volumes beginning in late 1999 to early 2002, which was a major factor dampening recycled metal prices. However, since the spring of 2002, many of these countries have restricted exports of recycled metal to retain this valuable resource for their own economies."

The Metals Recycling Business reported an operating income of $8.4 million for the quarter, an improvement of $10 million over last year's quarter. Scrap metal markets improved dramatically from the second quarter of last year when both export and domestic market prices were adversely affected by a weak domestic economy.

Currently, the domestic economy and finished steel demand remain weak; however, reduced foreign supplies of recycled metal, coupled with rising demand in China have caused scrap metal prices to rebound during the last four fiscal quarters. As a result, average scrap ferrous sales prices improved to $111 per ton during the most recent quarter, 28 percent higher than last year's second quarter, which were near record lows.

Ferrous sales volumes reached a record 555,000 tons during the quarter, compared to 402,000 tons shipped in last year's second quarter. Partially offsetting the higher sales prices and volumes was an increase in ocean freight rates to export to Asia and an increase in the cost of unprocessed metal, the primary component in the cost of production.

The Steel Manufacturing Business reported an operating loss of $1.4 million during the second quarter, compared to an operating loss of $2.1 million during last year's second quarter. The improved results were primarily due to the combination of modestly higher average selling prices and higher sales volumes of wire rod products.

Second quarter average selling prices rose by $8 per ton from the same time last year. Sales volumes increased 20,000 tons over the second quarter of last year driven largely by increased market share of the West Coast wire rod market.

Partially offsetting the higher prices and sales volumes was an increase in cost of recycled metal used to produce finished steel.

As for an outlook, Schnitzer noted that since the spring of 2002, the company's metal recycling businesses has experienced improved market conditions brought about by the combination of increased Asian demand coupled with reduced world-wide supplies of ferrous recycled metal.

Markets have also benefited from temporary production shut-downs of metal substitutes mainly due to political unrest in Venezuela and harsh winter weather conditions in Eastern Europe and Northern Asia.

Fiscal third quarter prices are expected to show further improvement, which should benefit both the company's wholly-owned operations and joint ventures in the metals recycling business. However, the benefits from the increasing selling prices are expected to be partially tempered by the rising cost of unprocessed metal as well as higher ocean freight rates.

The company’s auto parts business traditionally experiences modest improvements in retail revenues during the third fiscal quarter of each year, which is primarily due to seasonal weather improvements and promotional events. As such, the company anticipates a modest improvement in retail sales during the third quarter.