SDI sees sequential increase in earnings

Steel Dynamics Inc., which operates electric arc furnace (EAF) steel mills and, under the OmniSource name, a network of scrap yards, as well as fabricates steel, has reported first-quarter 2024 net sales of $4.7 billion and net income of $584 million, or $3.67 per diluted share. The company’s sequential fourth-quarter 2023 net income totaled $424 million, or $2.61 per diluted share, and prior-year first-quarter net income was $637 million, or $3.70 per diluted share.

Mark D. Millett, chairman and CEO of the company, describes steel demand for the quarter as steady, noting order volatility was seen early in the quarter with customer inventories being low and scrap prices declining month over month in the quarter. “Customer orders rebounded strongly in March, supporting increased pricing and solid order backlogs, especially within our value-added coated flat-rolled steel products portfolio,” he says. 

Operating income for the quarter was $751 million and adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, totaled $879 million. 

“The sequential improvement in earnings was driven by our steel and metals recycling businesses and supported by continued historically strong results from our steel fabrication operations,” Millett says. 

First quarter results

Operating income for the company’s steel operations in the first quarter was $675 million, which was 85 percent higher than sequential fourth-quarter results. SDI credits solid demand from the automotive, nonresidential construction, energy and industrial sectors that resulted in near-record first-quarter steel shipments of 3.3 million tons and higher realized selling values for the increase. 

SDI adds that flat-rolled steel pricing has rebounded from recent lows and steel producer lead times have extended since the end of the first quarter. 

The average external product selling price for the company’s steel operations in the first quarter of 2024 increased $111 sequentially to $1,201 per ton. The average ferrous scrap cost per ton melted at SDI’s steel mills increased $24 sequentially to $417 per ton.

Compared with the sequential fourth quarter, first-quarter 2024 operating income from SDI’s metals recycling operations increased to $23 million as the company saw increased demand supporting higher volume and metal spread expansion. Domestic steel production utilization increased from 74 percent in the sequential fourth quarter to 77 percent in the first quarter of 2024, according to the company, which adds that its team did an excellent job despite the falling price environment that began in December 2023. SDI says prices stabilized in April.

The company’s steel fabrication operations saw operating income of $178 million in the first quarter of 2024, which was below sequential fourth-quarter results given seasonally lower shipments coupled with a decline in metal spread as realized pricing declined and steel raw material input costs increased. The steel fabrication order backlog extends through the third quarter of this year, at pricing levels well above pre-COVID levels, SDI says. In addition, the company says, continued onshoring of manufacturing and robust U.S. infrastructure program and industrial buildouts support strong demand for 2024 and beyond.

SDI generated cash flow from operations of $355 million during the first quarter, even after funding the companywide profit-sharing contribution of $265 million. It also invested $374 million in capital investments, paid cash dividends of $68 million and repurchased $298 million of its outstanding common stock, representing 1.5 percent of its outstanding shares, while maintaining liquidity of $3.1 billion as of March 31.

Outlook

“We remain confident that market conditions are in place for domestic steel consumption to be strong throughout 2024,” Millett says. “Order entry activity continues to be solid across all of our businesses, and steel pricing has firmed. We believe North American steel consumption will increase in 2024 and that demand for lower-carbon emission, U.S.-produced steel products coupled with lower imports will support steel pricing.

"We believe the automotive, nonresidential construction, industrial and energy sectors will remain solid this year. The continued onshoring of manufacturing businesses, combined with the expectation of significant fixed asset investment to be derived from public funding related to the U.S. Infrastructure, Inflation Reduction Act, and Department of Energy programs, will competitively position the domestic steel industry. We believe this will benefit all of our operating platforms, especially our steel and steel fabrication businesses.”

SDI has started commissioning and operating four new value-added flat-rolled steel coating lines, producing prime quality galvanized and painted products on the first two lines in record times. “We expect to begin benefitting from the additional 1.1 million tons of value-added steel products beginning in the second quarter of this year and fully in 2025,” Millett says. 

“We are also quickly progressing on our aluminum flat rolled products mill and are incredibly excited about this meaningful growth opportunity, which is aligned with our existing business and operational expertise. We plan to begin operating the aluminum flat-rolled mill mid-2025. We have intentionally grown with our customers’ needs, providing efficient sustainable supply-chain solutions for the highest quality products.” 

The company has invested $2.7 billion in the greenfield aluminum rolling mill, Aluminum Dynamics, which will have 650,000 metric tons of capacity that will be supported by two 150,000-metric-ton satellite recycled aluminum slab centers. The Mexico recycled aluminum slab center is expected to start in 2024, according to the company’s earnings presentation, and the Arizona location is expected to start by mid-2025.

Decarbonization journey

While SDI says its steelmaking operations already meet 2050 intensity targets under the Paris Agreement and its 2 C scenario, the company is looking for additional ways to decarbonize to achieve carbon neutrality at its steel mills by 2050.

To that end, the company says it will identify and implement emission reduction projects, such as SDI Biocarbon Solutions; improve its energy management to reduce emissions and enhance operational efficiency; increase its use of renewable energy, such as with the development of its wind energy center; and research and develop innovative technologies.