Record Year for Steel Dynamics

Last year was a record breaker for Steel Dynamics in multiple areas. The company reported records for steel shipments, fabrication shipments, net sales, operating income and EBITDA.

Annual net income totaled $813 million compared to $382 million in 2016. Net sales for the full year totaled $9.5 billion compared to $7.8 million the previous year. Annual operating income was a record $1.1 billion compared to $861 million in 2016.

“The performance of the entire Steel Dynamics team was exceptional this year,” said President and CEO Mark Millett. “We performed at the top of our industry, both operationally and financially, and most importantly, we did it safely.”  

He added, “In recognition of the team’s tremendous achievements during the year, we were pleased to award each non-executive employee a special cash performance bonus in December, which totaled $7 million.” Each employee received a $1,000 bonus.

Steel Dynamics shipments for the year improved 15 percent from 2016 for a total of 9.7 million tons. Steel operations achieved record operating income of $1.1 billion on continued improvement in demand from automotive, construction and energy.

Metals recycling doubled its income from the previous year as a result of increased metal spread, reduced costs and stable volume. The division reported operating income of $85 million for 2017.

Fabrication shipments exceeded 627,000 tons for the year for annual operating income of $87 million. Fabrication order backlog and customer sentiment is a positive indicator for the non-residential construction market, said Millett.

Net sales for the fourth quarter were $2.3 billion and net income was $305 million, up from net sales of $1.9 billion and net income of $20 million in fourth-quarter 2016, and third-quarter 2017 sales of $2.4 billion and net income of $153 million.

Sales mix for flat roll in the fourth quarter was 869,000 tons, cold roll 112,000 tons and coated 678,000 tons.

Upgrades and maintenance outages in the fourth quarter reduced sequential quarterly operating income for steel operations by 26 percent to $207 million. As a result of the longer-than-planned outages, steel operations experienced higher costs and lower value-added shipments, the company reported.  Average product selling price in Q4 fell $17 to $761 per ton, while average ferrous scrap costs per ton melted decreased $5 to $300 per ton. The steel production utilization rate was 89 percent in the fourth quarter compared to 92 percent in Q3 and the industry average of 73 percent.

In outlook remarks, Millet said current and future economic and market conditions favor domestic steel consumption in 2018. “Domestic steel inventory levels have moderated. World steel demand and pricing have structurally improved and domestic steel demand remains healthy. We believe North American automotive steel consumption will be steady, and we continue to gain momentum in that sector. We also believe there will be continued additional growth in the construction and energy sectors. We believe the recent tax reform will also provide a stimulus for additional domestic fixed asset investment and growth. In combination with our own SDI expansion initiatives, we believe there are firm drivers for growth in 2018.”

During the earnings call, Millett said any comment by SDI on Section 232 would be speculation, but that he was “very” confident that the administration will make a positive decision for the steel industry. Yesterday’s announcement of safeguards on washing machines and solar panels give an indication of the climate and thinking of the administration, he said.

Broad based tariffs or quotas would be especially beneficial for SDI’s structural products division. “When you have 2.2 million tons of that product coming in, and literally it’s a 5 million ton market, I think that would have tremendous impact,” said Millett. Section 232 would improve conditions in the coated market and hot rolled would get a boost from energy market products.

Steel Dynamics noted scrap is tight due to lower flows in December. Going forward, SDI expects scrap pricing to move sideways and steel prices to move higher.

The company is focused on utilizing extra capacity in the coming year. SDI has 350,000 tons on the flat roll side that is not being fully utilized, 300,000 tons in SBQ, and 700,000 tons between structural and rebar.

Transportation is becoming an issue in the scrap market. Changes in rail systems are putting more demand on truck fleets, as is the difficulty in recruiting and retaining drivers.  “I think it’s going to be an industry-wide issue that we all have to face, with higher rate costs,” said Russ Rinn, executive vice president, metals recycling.

The Columbus, Miss., facility continues to operate “phenomenally” said Millett. “I think we shipped about 220,000 tons of automotive from Columbus just last year, which is a massive increase, and we’re on platforms to increase that to about 400,000 tons over the next 18 months as new platforms come into play.”