Steel Products

Schnitzer Steel Reports Drop in Scrap Shipments

January 9, 2013

Written by: Sandy Williams

Schnitzer Steel, one of the largest U.S. manufacturer and exporter of recycled ferrous materials, reported adjusted operating income of $3 million for the first quarter of 2013, a drop of 81 percent from $15 million reported in first quarter 2011. The adjustment reflected a $2 million pre-tax restructuring charge associated with cost reduction initiatives.

“As anticipated, during the first quarter of fiscal 2013 we continued to face difficult market conditions for recycled metals, including a sharp drop in both ferrous sales prices and volumes, due to soft demand resulting from slowing global growth and the weak domestic economic environment which continues to impact scrap generation,” said Tamara Lundgren, President and Chief Executive Officer. “Despite these challenges, each of our business segments remained profitable and our Auto Parts and Steel Manufacturing businesses improved operating margins sequentially.”

Schnitzer’s Metals Recycling sold 955,000 ferrous tons in the first quarter, with 71 percent as exports to 14 countries with Turkey, South Korea, Taiwan and Indonesia as the top consumers. Shipments were down 19 percent from fourth quarter and prices decreased 5 percent. Top nonferrous shipment destinations were China, U.S. and South Korea.

“The stronger markets are traditionally expected to be the emerging economies and are expected to grow in higher levels than the developed economies so we expect growth from our export market,” said Lundgren in the Schnitzer conference call.

When asked about export volumes on scrap, Lundgren said currently sales are 3-6 weeks forward. When asked about current spikes in iron ore prices she said, “We clearly do see that arbitrage taking place on pricing. We saw at the first of year China drop off in scrap purchasing and using more iron ore. We are continuing to see more players increase their use of scrap in blast furnaces. But price arbitrage takes precedence over other issues.”

The Steel Manufacturing Business sold 130 thousand tons in the first quarter, an increase of 3 percent from the previous quarter. The average net sales price for finished steel products was $680 per ton and comparable with fourth quarter pricing.

The Auto Parts Business revenues decreased 3 percent from fourth quarter but operating margins increased sequentially to 9 percent due to lower average inventory costs.