Steel Dynamics Emerges Strong from Challenging 2019

Results were achieved in a challenging environment, noted SDI President and CEO Mark Millett.

“Even though 2019 was one of our best years, it was challenged with high customer steel inventories, as many customers purchased beyond normal demand levels in 2018,” said Millett. “Domestic steel demand remained steady in 2019, but as customers began to destock inventories, steel prices declined throughout the year, and firmed in the fourth quarter, as destocking subsided and inventory levels were right-sized.

“Looking ahead, steel customer inventory levels have moderated, and underlying domestic steel demand remains intact for the primary steel consuming sectors, including automotive and construction,” continued Millett. “Customers have been positive concerning the business outlook for 2020. Additionally, our fabrication platform has an order backlog that is even stronger entering 2020 than it was at this time last year, and fabrication customer sentiment remains optimistic, a positive growth indication for non-residential construction projects.”

Millet added that SDI expects American steel consumption to grow moderately, supported by further steel import reductions due to recent trade cases and the impact of domestic steel content requirements for automakers in the USMCA.

Fourth-quarter results were impacted by planned maintenance outages at Butler and Columbus, which reduced flat roll shipments by 70,000-80,000 tons. Net sales of $2.4 billion in the fourth quarter were 6 percent lower than Q3 and 18 percent lower than Q4 2018 due to declining average steel prices that more than offset the benefit of declining scrap costs. The average price per ton decreased $45 to $746 per ton. Scrap pricing fell $32 per ton. Net income for the quarter was $121 million, down from $151 million in the third quarter.

Fourth-quarter steel shipments consisted of 838,000 tons of hot rolled, pickled and oiled; 167,000 tons of cold rolled; and 911,000 tons of coated steel.

Metals recycling reported an operating loss of $5 million compared to income of $3 million in the previous quarter. About 65 percent of ferrous shipments are used internally.

Fabrication operations reported strong order activity, record shipments of 644,000 tons and operating income of $119 million.

Steel Dynamics continues to optimize existing operations and offer additional value-added products. Investments in the Roanoke rebar mill expanded rebar capacity to 440,000 tons. SDI plans to increase shipments of rebar to 375,000 tons in 2020.

During the Q4 earnings call, Millett commented on the strength of the construction market and potential in the pipeline infrastructure sector. Engineered bar is a “bellwether” for SDI, and along with customer restocking, underlying demand is considered robust.

The Heartland acquisition shipped over 500,000 tons, representing 60 percent of its 800,000 ton planned run rate. Utilization will be increased to over 80 percent with the hiring of additional team members, the company said.

The 400,000 ton galvanizing line at Columbus will begin operations in mid-2020.

The new 3 million ton flat rolled steel mill project in Sinton, Texas, received environmental permits allowing full construction to go forward. The mill will serve three targeted sales markets representing over 27 million tons of flat rolled steel consumption and will include a 550,000-ton galvanizing line and 250,000-ton paint line with Galvalume capability. The $1.9 billion mill is expected to be completed in mid-2021.

Russ Rinn, executive vice president, Metals Recycling, commented that the scrap market is expected to be more normalized this year with fewer ups and downs. “In the short term, I think we’re looking at kind of a soft sideways,” said Rinn. “Certainly, the offshore pricing has declined slightly, but part of that’s going to be offset, we believe, with the increased steel mill utilization domestically. So, we’re not looking for any major changes.”

Millett added that the moderate weather in the Midwest this winter has kept the flow of scrap relatively strong and noted that a new HBI unit will come online this year creating a pretty stable raw market environment, which bodes well for spreads through the year.