Service Centers

Ryerson Expects Margins to Stabilize Over Next Few Quarters

June 27, 2017

Ryerson Holding Corp., a processor and distributor of industrial metals, said end-market shipments to most sectors improved in the second quarter, particularly in commercial ground transportation and HVAC industries. Shipments also increased to the oil and gas sector, while a quarterly year-over-year decline was seen in industrial machinery and equipment, consumer durables, and food processing and agricultural equipment.

In its second quarter guidance remarks, the company noted that U.S. service center volumes were higher in May compared to the prior year, but industry levels were well below May historical averages at 2.1 months of supply. Stronger demand was not enough to overcome continued elevated import levels. The strong dollar in 2017 makes the United States an attractive market “for an oversupplied international market relative to global demand and metal price spreads in the U.S. compared to international pricing,” said Ryerson.

Margins were challenged in the second quarter. Hot rolled coil and nickel prices fell more than 10 percent during the quarter as inventory replacement costs rose faster than Ryerson’s average selling prices. Revenue for the second quarter is expected to be in the range of $865 million to $875 million, but offset by margin compression.

“Although the outcome of the Section 232 investigations involving steel and aluminum imports to the U.S. market are not yet known, gross margins are expected to stabilize as replacement costs that peaked in the second quarter have started to moderate. Additionally, although the recurrence and magnitude of commodity price volatility causing margin compression in the industry, coupled with elevated import levels, continues to present challenges that obscure improvements in the company and its execution, margin compression is expected to abate as average inventory costs reset and realign with market prices over the next several quarters.”