SDI CEO Says Demand Healthy and Growth Expected in 2017

Annual records in 2016 were achieved for steel and fabrication shipments at 9.2 million tons and 562,725 million tons, respectively. Steel production for the year was 9.5 million tons.

Said CEO Mark Millett, “The industry benefited this year from reduced flat roll steel imports, coupled with steady demand. Our steel operations profitability declined significantly in the fourth quarter, as customers’ hesitancy to place orders earlier in the quarter resulted in both lower shipments and product pricing. However, supported by steady demand and a more favorable supply environment, rising world steel prices, and increasing raw material costs, both flat roll steel selling values and customer order activity increased meaningfully in November and December, and remain strong with an expectation for continued strength into 2017.”

During the earnings call Millet called the year “a tale of two cities, flat roll steel versus long products.” Flat rolled utilization rates were much higher in 2016 than long production utilization rates. Low customer inventory and steady demand resulted in a “positive seller’s environment” for flat rolled.

In fourth quarter, flat rolled customers showed a hesitance to place orders ahead of expected scrap declines, said Millet, resulting in a short period of weaker orders that was “purely procurement driven and not a result of any structural change in demand.”

SDI says it still has about 1.5 to 2 million tons of unused existing production and shipping capability that can be used should infrastructure projects take off as promised by the new administration.

The Columbus division continues to focus on product diversification and increasing value-added capabilities. Commissioning of a new paint line at Columbus provides SDI with 250,000 tons of annual coating capability. The new line can coat high-quality double-wide steel and improves access to markets in the South and Mexico.

Investments have been made at Butler to add 180,000 tons of annual galvanizing production that will be commissioned in mid-2017. The Roanoke Bar division will utilize excess melting and casting capability by adding equipment that will allow for multi-strand slitting and rebar finishing. Production is expected to begin at the end of 2017.

In its industry outlook for steel consumption, SDI noted automotive is ending its record years but NAFTA production is expected to grow slightly. The construction sector is expected to benefit from new public infrastructure projects and improvement is anticipated in the energy sector.

Millet says demand is pretty healthy and growth is expected in the sheet market. SDI lead times for hot-rolled coil is at 4-6 weeks and coated and cold-rolled sheet is at six weeks plus.

Millet said he is not anticipating complications with marketing plans for Columbus and shipments to Mexico due to the administration’s plans for NAFTA.

Said Millet, “No, we are continuing to look at Mexico as a strong marketplace for us. There are a lot of existing assets in place there. You just have to travel through the industrial centers there. Consumption is massive, and we’re not looking for a large portion of that. We shipped 200,000 tons into Mexico last year, and the intent is to increase that to around about 400,000 tons. And I think we are confident that it’s going to happen.

“Again, I think with the new administration, you have got some very, very positive things that they reportedly want to do, tax reform, trade, some sensible regulation. The balance is going to be not to shut down trade with Mexico or Canada or – I guess we need flow going both ways across the borders.”

When asked about any potential outcomes of new NAFTA policy that may be worrisome Millet said everything is speculative right now.

“I think they’ve come out with guns blazing and following up on the some of their promises. And I think tax reform, as I said, tax reform and sensible regulation will certainly help the country have a more positive business climate and boost the economy. And their position on trade, I think – we are already benefiting dramatically from the cases that were approved last year. They can only sort of vulcanize that environment. I think the sensitivities or the balance is trade and not getting into a trade war, and hopefully we have some sensible people advising that new administration and we won’t get that point.”

Trade circumvention is likely to be vigorously enforced, said Millet, noting the “whack-a-mole” situation seen with Vietnam last year. SDI is confident that there will be a much stronger pricing environment for their products due to successful trade cases. He added that “a strong point will be just taking action on the currency manipulation by China.”

When asked about potential acquisitions for SDI, Millet responded:

“I think we have – as we have said in the past, two principal areas of focus. One is, as I mentioned, pull-through volume, downstream opportunities that will allow us to support our own mills in times sort of down cycle. That is one specific focus. The second is obviously we’re still makers first and foremost in downstream, so a higher-margin value-add type products is another focus for us.”