Schnitzer Reports Strong Numbers for Quarter

Schnitzer Steel Industries, Inc. reported net income of $16.9 million on revenues of $153.6 million for the fourth quarter. During the fourth quarter the company reported net income of $2.2 million on revenues of $100.1 million.

For the fiscal year, the company reported net income of $43.2 million on revenues of $496.9 million. During fiscal 2002, Schnitzer Steel reported net income of $6.6 million on revenues of $350.6 million.

"Fiscal 2003 was a record year for Schnitzer Steel," said Robert Philip, president and CEO. "It was also the first year since the 1997 Asian financial crisis in which we experienced an extended period of improving prices for ferrous recycled metal. It is truly gratifying to see all of our business segments showing significant gains over fiscal 2002, most of which were driven by improving market conditions.

“Both our wholly-owned Metals Recycling Business and our joint ventures in the metals recycling business produced record profits in fiscal 2003, enabled in part by our strategic deep water export terminals that have the size, scope and capability to efficiently service the strong demand from our Asian customer base. “Also, our recently acquired Auto Parts Business provided us with significant earnings gains in fiscal 2003 and gives us a strong base to grow this business segment that fits within our core metals recycling strategy. Finally, our Steel Manufacturing business made significant improvement in its operating results during fiscal 2003, which came primarily from modest increases in domestic demand coupled with a rising price environment."

The metals recycling business reported operating income of $14.2 million in the fourth quarter, an improvement of $8.1 million over the same quarter last year. In the fourth quarter, this business segment shipped 530,000 tons of ferrous metal, near record levels, and was 28 percent ahead of the volume reported in the same period a year ago. The higher sales volumes came from the combination of increased tonnage of lower margin brokerage material coupled with a larger than average number of export shipments.

The average ferrous selling price increased 27 percent from last year's fourth quarter and was up 3 percent over the third quarter of fiscal 2003. The higher selling prices were driven by strong demand from China and other Asian countries. The cost of unprocessed metal also rose during the fourth quarter of fiscal 2003, which tempered the margin benefit from the higher selling prices and sales volumes.

The Steel Manufacturing Business reported its first quarterly operating profit in two years during the most recent quarter. Operating income amounted to $0.4 million in the fourth quarter of fiscal 2003, which compares to an operating loss of $2 million in the fiscal 2002 quarter.

The operating margin improvement was driven by the combination of higher sales prices and volumes, offset in part by higher recycled metal and energy costs. Fourth quarter 2003 finished steel prices averaged $300 per ton, which was 8 percent greater than the year ago level and was also the highest quarterly average since the second quarter of fiscal 1999.

Sales volumes amounted to 178,000 tons in the fourth quarter of fiscal 2003, which was 12 percent more than last year's fourth quarter and was the third highest quarterly volume ever shipped by this business segment. Both sales volumes and prices benefited from modest improvements in domestic demand as well as from lower volumes of steel imports, which is partially attributed to the recent weakness of the U.S. dollar as well as the continuing impact of the import duties. Selling prices also increased as domestic steel manufacturers raised prices in an attempt to pass through the rise in raw material and energy costs.

In early calendar 2002, certain countries of the former Soviet Union, primarily the Ukraine and Russia, enacted export tariffs and bans to restrict the export of recycled metal and retain the valuable resource to grow and redevelop their domestic economies.

These restrictions in tandem with other market factors resulted in the international ferrous recycled metal market rebounding to price levels that had not existed since before the 1997 Asian financial crisis.

Based upon the Metals Recycling Businesses' first quarter 2004 order backlog, contracted selling prices are on average, modestly higher than the amount recognized in the most recent quarter, and significantly higher than the amount reported during last year's first fiscal quarter.

Tempering the higher selling prices is an expected increase in ocean freight costs due principally to strong demand from Asian countries for bulk cargos, as well as upward pressure on the cost to purchase metal from suppliers. First quarter 2004 ferrous sales volumes are anticipated to be lower than the near record fourth quarter 2003 sales volumes, due to lower year-end inventories and typical quarterly variations, but are expected to be approximately 50% above last year's first quarter levels. Similar market factors are expected to affect our joint ventures in the metals recycling business.