Market
August 20, 2024
Sims to bolster North American operations
Written by Stephanie Ritenbaugh
Citing a challenging year for metals, Sims Limited has cut costs, slashed its dividend, and reduced its leadership head count by 206.
In turn, the Australia-based global recycler is focusing on its strengths, the company said in its Fiscal Year 2024 report. Sims is targeting its North American Metal operations, particularly acquiring more unprocessed recycled metals as it looks to improve its margins and lower its risk when the buy-sell spread tightens, in addition to improving its domestic sales channels. It also will boost its Sims Lifecycle Services operations in the U.S., which handles IT asset disposition, e-waste recycling, and data center services.
Sims says it is banking on decarbonization efforts and the growth of Electric Arc Furnaces to continue to drive North American demand for scrap.
Recall that last week, the company said it would unload its UK Metal business for about $248 million to focus on more profitable regions, such as the United States, Australia and New Zealand, “where our business position and demand for scrap are stronger,” the CEO and managing director Stephen Mikkelsen said in an Australian Securities Exchange filing. It also signed a letter of intent to sell its remaining interest in CLP Circular Services for about $32 million. The business was previously called Sims Municipal Recycling of New York.
The Sims Metal recycling business division has operations in North America, Australia, New Zealand, and the UK, and includes its North America Metal (NAM) segment.
Overall, Sims Ltd reported a net loss of AUD$57.8 million for FY’24, down from AUD$181.1 million in the year-ago period.
Sims cut its final dividend to 10 cents per share, a 71% drop from FY’23.
“In FY’24 the global scrap market faced challenging conditions due to variable demand from customers, a shortage of supply and increased buy-side competition. Inflation remained above central bank target ranges, keeping interest rates elevated and exerting significant upward cost pressure on the industry,” according to the company’s full fiscal year report.
Non-ferrous markets saw gains during the fiscal year as LME copper prices rose by 6% to US$8,764/t year-over-year and the average zorba price increased 7% to US$1,904/t compared to FY23 amid the increased importance of copper in decarbonization efforts.
North American operations
Sales revenue climbed for North America Metal. The sector reported AUD$4.4 billion during the fiscal year, a 14.1% increase over the previous period.
Trading margin was up 4.7% in the second half compared to the first, driven by a higher proportion of unprocessed metal, improvement in sales destination, and Sims’ Baltimore Scrap acquisition.
Similarly, Sim’s SA Recycling joint venture reported AUD$4.7 billion in sales revenue, a 5.5% increase over FY23. Trading margin was up 1.4% overall but dropped 1.3% down at constant currency as a favorable product mix and the addition of 11 sites was offset by increased competition, Sims said.
SA Recycling, an Orange, California-based 50/50 joint venture between Sims and Adams Steel, gets a smaller percentage of their scrap from dealers, procuring more materials at the source. That works in SA Recycling’s advantage when the buy-sell spread tightens. SA Recycling also has significant domestic sales, allowing it to ride the wave of growing demand. The joint venture, established in 2007, is one of the largest recyclers in the U.S. SA Recycling is run by George Adams. The family, which founded Adams Steel, is well known in the industry.
Acquisitions
Sims noted its several recent buys, the most recent of those was Baltimore Scrap, which is meant to grow Sims’ domestic sales channels. Other acquisitions were Alumisource, ARG and Northeast Metal.
“Two things that will continue are the targeted acquisition of assets that enhance our existing portfolio and, where possible, using recycled capital to fund these,” Mikkelsen said. “There will be a big focus in NAM, in particular, on sourcing additional unprocessed scrap and ensuring we have more domestic sales channels in which to deliver our products.”
Recent headwinds
Challenges to ferrous scrap included an average Turkish ferrous scrap prices in FY’24 were 2% lower than FY23, at US$387/t.
In addition, Chinese steel exports reached a multi-year high of 90 million /mt in calendar year 2023. In calendar year 2024, Chinese exports are is expected to grow further to 106.8 million mt, placing downward pressure on seaborne steel markets.
Even so, as global steel production weakened, margins in the U.S. remained strong, “driven by steel import tariffs restricting competition and legislative demand stimulus such as the Inflation Reduction Act,” Mikkelsen, said. “Paradoxically, the demand for steel is coming from projects that do not produce significant scrap in the short or medium-term. For example, new wind farms, new bridges, new rail, etc.”
He went on to add that “in the U.S., we have a highly protected steel industry, growing demand for steel and therefore scrap, but currently not a sufficiently growing supply of scrap.”
