SDI reports slimmer 3Q profits

Steel Dynamics Inc. (SDI) has announced third quarter 2015 net income and sales figures that have dropped in comparison to the third quarter of 2014

The Fort Wayne, Indiana-based electric arc furnace (EAF) steelmaker has reported net income of $61 million, or 25 cents per share, on net sales of $2 billion. That compares to third quarter 2014 net income of $91 million (38 cents per share) on net sales of $2.3 billion. The sales figure is on par with SDI’s second quarter 2015 net sales of $2 billion.

“The third quarter 2015 market environment continued to be challenging for our steel and metals recycling operations,” says SDI CEO Mark D. Millett.

The company’s metals recycling operations recorded third quarter 2015 operating income of $463,000 compared with second quarter 2015 operating income of $12 million. Sequential quarterly ferrous pricing was down three percent and procurement costs rose, resulting in a 14 percent reduction in metal margin. Additionally, nonferrous market indices fell more than 10 percent in the third quarter 2015, resulting in a 20 percent reduction in metal margin. The poor results occurred before the even sharper ferrous scrap price drop of early October 2015.

Regarding conditions in the steel industry, Millett says, “Ongoing pressure from steel imports remains high, negatively impacting steel pricing and domestic steel production, resulting in industry utilization not fully reflecting the actual strength in U.S. steel consumption. The automotive market remains strong and construction continues its steady improvement. However, customer steel inventories remain at elevated levels and, when combined with further declining scrap prices, have resulted in hesitant ordering. As scrap prices stabilize at these lower levels and steel inventories moderate to more normalized quantities into 2016, we believe domestic steel production should improve.”

While steel imports “continued to flood the domestic market,” according to SDI’s earnings news release, “U.S. steel consumption remained steady, resulting in relatively flat steel and metals recycling shipments.”

Millett is warning shareholders that the operating environment may be at least as difficult in the fourth quarter. “We believe the current elevated level of domestic supply chain inventory, combined with the continuation of excessive steel imports and typical fourth quarter seasonality, could further erode domestic steel industry profitability in the fourth quarter 2015,” he comments.

“While underlying steel demand in certain market sectors remains steady and import levels have somewhat declined, the issue of steel imports persists,” Millett says. “Nonetheless, we continue to strengthen our financial position through strong cash flow generation, record liquidity and the execution of our long-term strategy. We are well-positioned for additional growth. The recently announced purchase of steel decking facilities is an example of an investment that provides an excellent financial return and further diversifies our product capabilities within our fabrication group. Customer focus, coupled with our market diversification and low-cost operating platforms, support our ability to not only maintain our best-in-class industry performance but to also grow in a challenging environment.”