SDI Earnings Reflect Strong Construction Demand

“The SDI team shines in moments of challenge,” said Steel Dynamics President and CEO Mark Millett. First-quarter results support that confidence as the company reported strong earnings for January-March despite the coronavirus pandemic.

First-quarter net sales totaled $2.6 billion and net income $187 million, an improvement from Q4 2019 for both metrics. Selling price per ton for steel operations increased $10 from Q4 to $774 per ton. During the first quarter Steel Dynamics shipped 891,000 tons of hot-rolled coil and pickled in oil steel, 151,000 tons of cold rolled, and 948,000 tons of coated steel, for a total of 1,990,000 tons. Ferrous scrap cost per ton melted at SDI’s steel mills increased $24 sequentially to $267 per ton.

Construction demand continues to be good as most states have allowed construction projects to remain open during the pandemic. Postponements and delays have occurred but, so far, without significant impact for SDI businesses. Construction generally lags the market by 8-10 months because operations tend to be pre-funded. “Reports of private sector construction drying up seem disconnected from our order book,” said Millett.

SDI’s fabrication platform backlog is up 15 percent from a year ago and there were a record number of inquiries in the first quarter. Structural rail is doing well and pulling in market share, the company said.

SDI’s New Millennium Building Systems reports an extremely strong backlog despite some projects being pushed back. Market share has increased in the distribution/warehouse market, and the structural and rail divisions have a strong backlog through May.

Energy and automotive manufacturing shutdowns have translated to softness in engineered bar. Once automotive and heavy equipment companies, like Caterpillar and John Deere, come back, perhaps by the end of May, business should start to improve, said Executive Vice President and CFO Theresa Wagler

Although the energy sector continues to suffer from devastatingly low oil prices, the impact to SDI is negligible. Only 7 percent of business across the company in 2019 was related to energy and some of that was solar, noted Wagler. Since the purchase of the Columbus, Miss., mill, which was formerly a major pipe supplier, the team has diversified products and geographic market, leaving it only 10-15 percent energy related.

SDI’s metals recycling platform shipped 4.6 million gross tons of ferrous scrap in Q1, unchanged from a year ago.  First-quarter operating income from metals recycling increased to $8 million compared to a loss of $5 million in the previous quarter.

SDI has maintained a flat roll capacity utilization of 80 percent compared to competitor rates in the mid-50s. Utilization stays high due to flexibility of product mix and internal steel purchases. Millett anticipates enough flat roll demand to maintain the 80 percent utilization rate through June.

“The team delivered a strong first-quarter 2020 performance in a challenging operating and market environment,” said Millett. “Solid underlying steel demand during the first quarter, combined with our value-added product capabilities, allowed us to achieve record quarterly steel shipments.”

Millett was upbeat as he described the ongoing construction of the EAF flat roll steel mill in Sinton, Texas. Environmental permits were obtained in January and the mill remains on track for a mid-2021 opening. With the signing of a customer for an on-site location, another close to signing and four others in the wings, SDI expects collectively to sell 1 million tons of its 3 million ton capacity on site as well as taking a strong market share from imported steel.

“It is still too early to determine the full scope of the negative impact COVID-19 will cause to global economies and the related impact to domestic steel demand,” said Millett. “At this time, domestic steel orders related to certain sectors have slowed considerably due to the temporary closures of numerous steel consuming businesses. In particular, the temporary closure of domestic automotive production and its related supply chain, as well as weakness in the energy sector, have reduced flat roll steel demand. Conversely, construction is the largest single domestic steel consuming sector and while some projects have been disrupted or postponed, at this time the sector remains intact. Our steel order activity from construction customers, as well as our strong steel fabrication order backlog, supports this sentiment.

“When states begin to ‘re-open’ across our nation, we believe steel demand will likely respond quickly based on current customer buying patterns and already low steel inventories throughout the supply chain,” he added.