Steel Dynamics Forges Ahead with Mississippi Paint Line Project, Sees Improved U.S. Market as Imports Fall

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Researched by Industrial Info Resources (Sugar Land, Texas)--Steel Dynamics Incorporated (NASDAQ:STLD) (Fort Wayne, Indiana) is proceeding with plans to complete a major addition in first-quarter 2017 at its site in Columbus, Mississippi, amid much improved market conditions in the U.S. The leading steel producer expects capital expenditures for 2016 to be roughly $225 million, down from an earlier forecast of $250 million to $300 million.

This year's capital expenditures will be heavily weighted toward the second half of the year as the company pushes to complete the $100 million Columbus expansion, executives said during Steel Dynamics' earnings conference call. The project includes a 250,000-ton-per-year continuous coil paint line, and the installation of equipment to an existing galvanizing line for the production of Galvalume--steel sheet coated with aluminum-zinc alloy. The Columbus facility will supply steel in widths up to 72 inches to serve customers in the U.S. South and Mexico that manufacture building panels, roofs, garage doors, air conditioners, heating furnaces, electrical fixtures and appliances.

Chief Executive Officer Mark Millett said that as a part of the project, the company is installing equipment in one of the Columbus galvanizing lines this month. The installation is anticipated to result in about $5 million in lost earnings for third-quarter 2016, he added.

Millet said the company is benefiting from previous investments, including $26 million in premium rail production; $96 million for engineered special bar quality diversification and capacity expansion, which is geared toward the automotive industry; and, more recently, investments for an additional flat roll pickling capability at the company's Butler site in Indiana.

Steel Dynamics is benefitting from markedly better market conditions in the U.S., the result of moderated customer inventories and falling steel imports, along with healthy automotive and construction markets. For the just-ended second quarter, steel shipments increased 9% to 2.5 million tons, as volumes improved across all divisions except in special bar quality products, said Chief Financial Officer Theresa Wagler. Net income for the quarter was nearly $142 million, compared with $32 million in second-quarter 2015. External net sales for second-quarter 2016 were more than $2 billion, roughly flat with sales in the same quarter a year earlier.

Domestic flat roll steel utilization is strong, Wagler said, as imports have declined and customer inventory levels are better balanced with demand. "Even though second-quarter platform utilization was 95%, it's a bit misleading as the Flat Roll Group produced over the theoretical quarterly capacity, offsetting lower utilization at the structural and engineered bar divisions, which operated at 82% and 53%, respectively," she added.

Millett said steel import levels are down 25% year-to-date, as trade constraints have eliminated China and the other primary importers from the marketplace. The International Trade Commission has imposed a series of anti-dumping duties on steel products from China and several other nations, in response to complaints by domestic producers of unfair trade practices.

Millett said the U.S. is now seeing import offers from "non-traditional sources," such as Vietnam, but added he was "somewhat confident" imports would not return to the levels that "really imploded on markets" in 2014 and 2015.

For related information, see March 9, 2016, article - U.S.-Based Steel Producers Target Capex for 2016 Despite Tough Markets, and July 22, 2015, article - Steel Dynamics Blames Imports for Second-Quarter 2015 Profit Tumble, Sees Better Market in Second Half.

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