Schnitzer Sees Improved Earnings for Quarter

Schnitzer Steel Industries, Inc. reported net income of $3.4 million on revenues of $86.1 million for the quarter ended May 31, 2002.

These amounts compared to net income of $1.5 million on revenues of $69.0 million for the third quarter of fiscal 2001.

For the first nine months of fiscal 2002, the company reported net income of $4.4 million on revenues of $224 million. During the first nine months of 2001, Schnitzer Steel reported net income of $4.9 million on revenues of $227.2 million.

"We are pleased with the profit recovery for our wholly-owned Metals Recycling Business as well as the continued strong performance of our joint venture businesses," said Robert Philip, president and CEO. "The higher profits are a direct result of improving market conditions in both the United States and abroad. Demand is rising modestly, particularly in Asia. More importantly, the supply of scrap remains tight, which was not the case during the Asian economic recovery in 1999 and 2000. During this period, demand rose, but the supply of ferrous recycled metal coming out of the former Soviet Union flooded the market, holding prices down. Today, recycled metal continues to come from these countries, but export restrictions and tariffs have reduced the flow of this material allowing market prices to rise."

The company's wholly-owned Metals Recycling Business earned operating income of $3.7 million during the third quarter of fiscal 2002, compared with $0.9 million for the same period last year. Year-to-date operating income totaled $5.3 million, which equaled the operating income for the same period last fiscal year. "During the last 90 days, our Metals Recycling Business has rebounded strongly," commented Philip. "The average selling price for ferrous recycled metals improved substantially over the second quarter to $96 per ton and was the highest average we have seen in two years. This improvement primarily drove our margins higher. The export market was stronger and prices rose sharply in the most recent quarter. The price improvements were caused by the combination of good demand coming from both China and Korea as well as from lower supply coming from the former Soviet Union. Ocean freight rates, although escalating slightly from the first half of the year, continue to remain attractive and have helped our margins improve over last year's third quarter."

Income from the company's joint venture businesses increased by 175 percent to $4.6 million for the third quarter of this fiscal year from $1.7 million for the same quarter last year. Year-to-date, the joint ventures contributed $13.8 million to the company's operating income compared with $5.8 million for the same nine months in fiscal 2001.

The company's joint ventures in the metals recycling business, which operate facilities in the northeastern and southwestern United States, were principally responsible for the improvements. During the most recent quarter, these businesses shipped 0.9 million tons of ferrous material compared with 0.6 million tons for the same quarter last year. Year-to-date shipments rose to 2.7 million tons, an increase of 29 percent over last year's period.

"The joint ventures have experienced similar ferrous selling price trends as our wholly-owned businesses in fiscal 2002," commented Philip. "Moreover, operating margins for these joint ventures have also improved due to operational efficiencies. In addition, the company's self-service auto wrecking and parts joint venture continues to report higher earnings, resulting from refinements in its operations and system enhancements."

During the third quarter of fiscal 2002, the Steel Manufacturing Business reported a loss from operations of $1.4 million compared with operating income of $1.8 million for the third quarter last year.

For the year-to-date fiscal 2002 period, this business segment reported a loss from operations totaling $3.8 million, which compares to income of $3.5 million during the same period last year.

"Our third quarter results for this business segment showed sequential improvement from the second quarter, but were lower than we expected going into the quarter," commented Philip.

The U.S. Government recently announced steel import tariffs and dumping duties, which went into effect in April 2002. "The tariffs and duties had only a minor favorable impact on both merchant bar and wire rod prices. However, we have not yet experienced any significant increase in rebar prices as domestic competitors have hesitated to support any significant price increase due to the lack of a rise in end user demand," Philip said. "We have seen some seasonal improvements in rebar consumption, but have yet to benefit from improvements in the western U.S. economy.

“Orders for wire rod increased during the third quarter, which allowed the Company to ramp up production of its rolling mills in mid-March. The higher production volume lowered the rolling mill and finishing production costs per ton by approximately 15 percent in the third quarter of 2002 as compared to this year's second quarter. As the third quarter ended, the efficiency improvements began to lower the average cost of finished goods inventory, which helped to modestly expand our margins."

"We expect that our wholly-owned metals recycling operations will continue to improve for the remainder of fiscal 2002 due to increased global demand, lower supply from former Soviet Union countries and the resulting rise in recycled metals selling prices. The results from our joint ventures in the metals recycling business are expected to remain good due to the same market fundamentals as our wholly-owned business.