Fort Wayne, Indiana-based electric arc furnace (EAF) steelmaker Steel Dynamics Inc. is predicting a slight decline in earnings for the third quarter compared with the second quarter of 2020.
The company says that while its steel margins have narrowed, it expects “meaningfully better” earnings from its metal recycling operations. SDI owns OmniSource Corp., which operates about 50 scrap facilities and additional facilities under other names.
The company has provided third-quarter 2020 earnings guidance “in the range of 42 to 46 cents per diluted share,” which would be down from 1 to 5 cents from the 47 cents per share earned in the second quarter. It says part of the earnings decline (from three to four cents per share) is attributable to $12 million in construction costs for its new EAF mill in Sinton, Texas.
“Third-quarter 2020 earnings from the company’s steel operations are expected to be lower than sequential second-quarter results due to metal spread compression more than offsetting increased shipments driven by improved automotive and strong construction demand,” states SDI.
The firm continues, “Average realized quarterly flat roll steel product pricing is expected to decrease during the quarter based in part on lagging price-indexed contracts, offsetting the benefit of lower average scrap costs. As domestic steel production improved in the third quarter from the trough experienced in the sequential second quarter, ferrous scrap demand also strengthened. Based on significantly higher scrap shipments, third-quarter earnings from the company’s metals recycling operations are expected to be meaningfully better than sequential second-quarter results.”
In terms of its finished steel markets, SDI writes, “Construction continues to show its resiliency. The customer order backlog for the company’s steel fabrication platform remains strong, and customers are optimistic concerning nonresidential construction projects.”