Steel Mills
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Steel Dynamics Posts Record Operating Income
Written by Sandy Williams
July 24, 2018
Steel Dynamics reported net sales of $3.1 billion and net income of $362 million for the second quarter of 2018, more than doubling its year-over-year income. First-quarter 2018 net sales totaled $2.6 billion with net income of $228 million.
“Our second-quarter 2018 income from operations increased 55 percent sequentially to a record $502 million, and adjusted EBITDA increased to a record $590 million,” said President and CEO Mark Millett. “During the second quarter, we saw improved demand and product pricing across the entire steel platform, resulting in record quarterly steel shipments and significant margin expansion.”
Operating income from flat roll steel operations increased 67 percent sequentially, driven by metal spread expansion related to continued strong underlying demand, higher selling values and a 5 percent increase in shipments. Shipments in the second quarter for SDI included: HR 915,000 tons, CR 135,000 tons and coated 774,000 tons.
Average steel selling price rose $110 from the first quarter to $932 per ton, while the average ferrous scrap cost per ton melted increased $27 to $348 per ton.
The company’s steel production utilization rate was 99 percent in the second quarter, compared to 94 percent in the sequential first quarter and 91 percent in Q2 2017.
Operating income from the company’s long product steel operations increased 36 percent as a result of improved shipments and metal spread expansion, primarily from the company’s Structural and Rail Division. SDI plans to increase its SBQ bloom production for use in its Engineered Bar division. The company shipped 43,000 tons in Q2. SDI anticipates annual SBQ shipments of 200,000 tons.
SDI’s fabrication segment was negatively impacted by higher average steel input costs. Demand, however, is strong for fabrication, and SDI’s customers are optimistic about projects for the second half of 2018, the company said. Operating income for the segment fell to $14 million, compared to $20 million in the first quarter, as higher average selling values and shipments failed to offset higher steel input costs.
Operating income from SDI’s metals recycling operations decreased by $2 million to $26 million in the first quarter as higher procurement costs offset an increase in ferrous shipments. SDI remains confident there is more than adequate scrap supply to support domestic steel demand.
“We remain confident that market conditions are in place to benefit domestic steel consumption for the rest of the year,” said Millett. “Domestic steel inventories remain reasonably balanced and imports will be under control. Based on strong steel demand fundamentals and customer optimism, we believe steel consumption will continue to be strong throughout the year providing high levels of mill utilization and extended lead times. “
Recent actions by the federal government to restore financial health to the domestic steel industry have provided “sustainable, long-term support for the U.S. manufacturing base,” said Millett.
“We support the attempt to create a more level playing field for domestic steel producers. And we have seen positive change. The industry continues to invest and create new jobs. We believe there has also been a marked increase in the utilization of existing steel facilities; in particular, utilization in U.S. flat rolled facilities has risen to way over 85 percent. Steel companies are increasing jobs and wages across the country.”
Millett was asked during the earnings call if new hot rolled capacity coming online will relieve some of the tightness in the HR market. Millett said he expects the tightness will continue for some time and that new capacity from Mingo Junction and Granite City “will be more than absorbed” by continued growth and demand.
Current cost pressures include rising costs for electrodes and freight. Electrodes rose about $4 per ton in the second quarter and are expected to match that in the third quarter. “We’re definitely seeing higher freight costs that are dashing through the system,” said Millett. He added that there is “definitely pressure across the industry to move things back and forth. We are seeing it all the way from scrap to finished goods shipments. This point is concerning, but manageable so far.”
The company expects the addition of Heartland to the Steel Dynamics portfolio to provide operating flexibility. Heartland will be integrated into SDI’s Midwest flat rolled operations and focus on producing value-added, lighter gauge product. Production will be increased to 40,000 tons per month in the second half of 2018. An annual production run-rate of between 800,000 tons and 900,000 tons of cold roll, pickled and oiled, and galvanized flat roll steel is anticipated by mid-2019.
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Sandy Williams
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