SDI Expects "Transformational Change" from New Sinton Mill

SDI expects to begin production at the EAF mill near Corpus Christi by the end of 2021. Millett acknowledged the Sinton project has experience some delays, such as COVID complications with contractors and a late crane delivery. But he remains confident it will start up by year’s end and will achieve a full run rate by mid-year 2022. Based on current forecasts, Sinton’s shipments could reach 2.0-2.2 million tons in 2022. “This three-million-ton facility is designed to have product capabilities beyond that of any existing EAF flat rolled steel producer, competing even more effectively with higher-emitting integrated steel facilities and foreign mills,” he said.

SDI is also working on four additional flat rolled coating lines – two new paint lines and two new galvanizing lines. Two will be adjacent to the Sinton mill and two at SDI’s Heartland Flat Roll Division in Terre Haute, Ind. Each site will increase the company’s coating capacity by 540,000 tons annually. The galvanized line at Sinton should be shipping coils in early November. All the lines are expected to be in operation by mid-2023. In addition, six customers have committed to locating processing centers on the site, representing 1.8 million tons of annual steel consumption, and five have already broken ground, the company said.

Sinton is strategically located near underserved regional markets with more than 27 million tons of relevant steel consumption in the U.S. and Mexico, Millett noted. “Based on this geographic location, we can offer shorter delivery lead times and provide superior supply-chain solutions. We can effectively compete with imports arriving in Houston and the West Coast,” he added.

Record Third-Quarter Results

Not counting costs associated with construction of the Sinton mill, SDI reported a whopping record-high adjusted net income of $1 billion on net sales of $5.1 billion in the third quarter. In comparison, the steel maker saw income of $100 million on sales of $2.3 billion in the same quarter last year.

“During the third quarter, steel demand remained strong as product pricing continued its positive trajectory across our entire steel platform. Higher realized steel selling values drove significant metal spread expansion and were again most prominent within our flat roll steel operations, as continued demand strength and low customer inventories persisted throughout the supply chain and supported prices.  Domestic steel consumption was strong from the automotive, construction and industrial sectors, while the energy sector continued to show signs of recovery,” Millett said.  

“Our segment operating results continue to be outstanding,” he continued. “Third-quarter operating income from our steel operations was a record $1.4 billion, and our metals recycling operations sustained strong earnings, even as scrap prices declined in August and September. Our steel fabrication operations achieved record operating income over three times sequential second-quarter results and once again achieved record quarterly shipments. Our steel fabrication backlog continues grow, remaining at record volumes and forward-pricing.”

Despite the record results, SDI’s shipments were actually down 5% in the third quarter. “They were off a little mainly due to difficulty getting rail and truck to move the materials,” Millett said. “We expect [shipments] to move out in the fourth quarter.”

Looking forward, SDI sees market conditions that will support solid domestic steel demand for the fourth quarter and into 2022. Millett had nothing negative to say about any of the major end-use markets. “Positive market dynamics driving strong steel demand across the platform. This sustained demand, coupled with low inventory levels throughout the supply chain, continue to support strong steel selling values, especially within the flat rolled steel market.”

Answering one analyst’s question, Millett expressed skepticism over predictions of a major price correction. “No doubt demand is there. I would not characterize imports as surging. I imagine prices will erode to some degree, but it is not going to be a massive reduction. Average [HR] for next year at $750 a ton? I just can’t see that happening with demand what it is today.”

SDI Opportunities in Auto, Scrap, Processing

SDI has not yet experienced any impact on automotive orders related to the chip shortage, Millett said. In fact, the EAF steelmaker is growing its share of the auto market, once held exclusively by integrated steel producers. Nearly 30% of the production at SDI’s mill in Butler, Ind., is now auto-related, he said. Part of the gain is because of SDI’s product offering, Millett said. Automakers also see EAF steel production as a means to cut their carbon footprint. “We offer some unique products, but our sustainability model has earned us some business as well. The USMCA has necessitated sourcing [of lower carbon steel] by foreign carmakers.” With finished vehicle inventories at historic lows, and the auto build rate forecast at a strong 15-17 million units in 2022-2023, SDI sees automotive as a major growth opportunity.

Millett called SDI “a steel industry leader in sustainability,” and said the company’s goal is to be carbon neutral by 2050.

Recent events in the scrap market, including competitor Cleveland-Cliffs’ acquisition of Ferrous Processing and Trading, will have no effect on SDI’s strategy to control its scrap supply. SDI owns OmniSource and in the last year has purchased scrap recycling operations in Mexico, Houston and Corpus Christi, Texas, to lend further support to raw materials supply for Sinton.

Will there be enough prime scrap, given all the new EAF steel production coming online? “Every year people worry about getting scrap as the EAF industry continues to grow. We think the scrap volume will grow in lockstep with increased capacity,” Millett said in response to one question. He noted that SDI will have less need for prime scrap – reducing the mix to 40% from 60% over time – as it improves the processing at its scrap facilities.

SDI said its plan to purchase a 45% interest in New Process Steel, its biggest flat rolled customer, secures the volume and gives the mill access to New Process’ non-automotive-related manufacturing business in Mexico – much of it high-margin flat rolled coated products used in HVAC and appliance. The relationship with New Process will also create more downstream pull-through volume to help support the new Sinton mill. “We have two objectives: New Process is a large value-added pre-paint customer, and this allows us to secure that business into the future. We were also looking for a platform of growth in downstream manufacturing, particularly in Mexico. We certainly do not want to get into the service center business,” Millett added.

SDI supports the Biden administration’s trade policy efforts to keep steel imports at moderated levels, especially as they relate to China’s steelmaking overcapacity. Regarding the ongoing negotiations between the U.S. and EU, SDI expects the final agreement to include a steel quota mechanism to protect U.S. national security goals and eliminate import surge risks. “Aside from Turkey, Europe has not been a significant import source. We strongly believe that collaborating with our European allies against the real perpetrators of  global overcapacity, represented by China and other Asian export-based economies, is the most effective path to free trade,” Millett said.

By Tim Triplett, Tim@SteelMarketUpdate.com