Steel Dynamics Blames Imports for Second-Quarter 2015 Profit Tumble, Sees Better Market in Second Half

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Researched by Industrial Info Resources (Sugar Land, Texas)--Steel Dynamics Incorporated (NASDAQ:STLD) (Fort Wayne, Indiana), a leading U.S. steel producer and metals recycler, cited an import-dominated U.S. steel market as the main culprit behind the company's sharp decline in profits for second-quarter 2015, despite growing domestic demand and lower scrap metal costs. Net income was reported to be $31.55 million, compared with $72.3 million in second-quarter 2014.

Industrial Info is tracking $151.5 million in active projects involving Steel Dynamics, including two projects at the company's steel minimill in Butler, Indiana: the $5 million addition of a holistic optimization system and the $2 million upgrade of a hot-band finishing line. Tenova Goodfellow Incorporated (Mississauga, Ontario) will provide two of its Expert Furnace System Optimization Process units at the 3 million-ton-per-year minimill, for both electric arc furnace batteries. The upgrades will convert the hot-band line to process hot-rolled pickled and oiled coils. The projects are expected to be completed in third-quarter and fourth-quarter 2015.

Total revenues stood at $2 billion, a 3.13% decrease from the same period last year. In a quarterly press release, the company cited an "ongoing flood" of steel imports that put downward pressure on product prices, more than offsetting the benefits of lower scrap raw material costs. Nonetheless, shipments improved during the second quarter as domestic demand strengthened. As an example of the dynamic, Steel Dynamics' flat-rolled shipments grew 24%, but operating income from sheet products dropped 15%, as flat-rolled products were those most negatively affected by heavy import volumes and large customer inventories.

Earnings also were hindered by a pair of exceptional expenses: about $29 million associated with the company's decision to idle its Minnesota-based pig iron operations, given the sharp decline in pig iron prices, and about $9 million attributed to a planned maintenance outage at subsidiary Iron Dynamics.

Steel Dynamics also took heart in the improving U.S. construction industry, which typically is a leading indicator for the steel market. The company's fabrication businesses managed to achieve record profitability, largely attributed to non-residential construction.

"Despite the import headwinds, we achieved over a 20% improvement in sequential second-quarter 2015 adjusted operating income--excluding the idled Minnesota Operations and the Iron Dynamics outage impact--based on record fabrication performance and significantly improved metals recycling results, as scrap pricing volatility subsided in the quarter," said Mark Millett, the chief executive officer of Steel Dynamics, in an earnings report. "We believe the key scrap supply factors of export activity and the strength of the U.S. dollar will continue to mute extreme scrap pricing volatility."

Steel Dynamics executives expect the second half of the year to show improvement, as import volumes are predicted to decline and scrap costs to remain low. They also noted that the low product prices appear to have stabilized and domestic demand is improving for related industries, such as automotives, construction and manufacturing.

"We are well-positioned for additional growth," Millett said in the earnings report. "The recently announced paint line addition at our Columbus flat-rolled division is an example of an investment that provides an excellent financial return, further diversifying our product capabilities into higher-margin market segments at this facility. Customer focus, coupled with our market diversification and low-cost operating platforms, support our ability to maintain our best-in-class performance."

Industrial Info is tracking progress at the Columbus flat-rolled plant.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.