Metals recycler Sims Group Ltd said sharply higher scrap metals prices propelled its half-year net profit 61 percent ahead of a year ago, and China's hefty steel output allowed it to upgrade its second-half outlook.
"Second-half earnings could now exceed those in the first half by up to 25 percent," the company said in a statement.
The increase hinged on Sims' ability to maintain its margins on ferrous, or steel sales, the Australian dollar holding near its current U.S. exchange rate, and metals prices keeping to current levels.
Ferrous sales accounted for 59 percent of revenue in the second quarter.
The company reported a $19.2 million net profit for the six months to December 31. During the quarter sales increased by 12 percent..
Sims' Group Chief Executive Jeremy Sutcliffe said a recent spike in ferrous metal prices has been aided by Japan's higher-than-expected domestic steel production.
"A rise in Chinese steel production and consumption has created a shortage of ferrous scrap that is likely to be more than temporary," Sutcliffe told reporters.
As a result, Sims expected robust ferrous prices to continue in the medium term.
Improved recoveries of nonferrous metals, such as copper and aluminum from shredded vehicles was also boosting revenue, Sutlcliffe said.
The discount nonferrous scrap traditionally fetches against prices for primary metal traded on the London Metal Exchange was narrowing, as well, further adding revenue, he said.
Mr Sutcliffe said the oversupply of scrap from Eastern Europe that severely weakened ferrous prices - and Sims's profits - from the mid-1990s showed no signs of returning.
"I think now that those flows will never return to the levels they were in the past five years," he said.
Sutcliffe added that continuing strong growth in Chinese steel production had helped scrap prices.
With Sims virtually debt free, Sutcliffe said the company was keen to acquire a business which had leverage in its own domestic market as well as easy access to export markets.
"The biggest pool of opportunities is obviously North America [where] there's a lot of fragmented markets," he said. Reuters
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