Steel Mills

SDI Hit Hard by Winter in Q1

Written by Sandy Williams

Severe winter conditions negatively impacted Steel Dynamic’s first quarter earnings causing a 25 percent drop in consolidated operating income as compared to the previous quarter. SDI reported net income of $39 million for first quarter 2014, on net sales of $1.8 billion, down from $55 million on net sales of $1.9 billion Q4 2013.

Steel operations in the Midwest, where most of SDI operates are located, were the hardest hit with operating income declining 30 percent to $47 million q/q. Sheet steel volumes decreased 12 percent along with reduced margin spread. Steel mill production utilization rate fell slightly to 86 percent compared to 88 percent the previous quarter due to production interruptions from power company curtailments. Shipments of steel from the flat rolled division totaled 641,520 tons. Total steel operations production total 1.5 million tons.

“The uncharacteristically severe and prolonged winter weather conditions resulted in increased energy costs, reduced production, diminished availability of transportation and lower shipments,” said SDI President and Chief Executive Officer Mark Millett.

SDI says there are still some back up in rail transportation, especially in Minnesota where the rail system is still struggling to get cars back and forth from the range. Most of the problem has been alleviated, however. In an anecdotal comment, the rail system in Colorado is about 85 percent caught up and has resorted to using trucks in some cases to move loads. Estimates are that it will still take a few months to be back to normality.

SDI’s fabrication division showed improvement due to increased construction demand. Order inquiries and bookings indicate a recovering nonresidential construction market.

SDI incurred a $2 million charge related to building damage from excessive snow accumulation at its metals recycling operations. Operating income dropped to $10 million for the quarter from $12 million in Q4 2013.

SDI shut down operations at its Minnesota nugget production facility for two weeks in February due to significantly higher natural gas costs related to weather conditions. Minnesota experienced 70 days of subzero temperatures. The outage and higher natural gas costs resulted in losses of $8.9 million for the division. Trials related to product yield and the cost of production were delayed by weather problems in the first quarter and will be continued in second quarter. Severe weather prohibited delivery of materials required for trial testing until mid April. SDI expects to incur similar losses in the second quarter due to increases in production costs during the trial period.

There are no maintenance outages planned at SDI that will disrupt production. “We pushed off maintenance outages into third quarter because we can,” said Richard Teets, President and Chief Operating Officer of Steel Operations. Teets said the maintenance delays will give the market some time to recover from some of its issue. An upgrade in Jeffersonville to increase speed in the Galvalume coating line is being pushed into July to take advantage of the opportunity to be a bigger player in that arena. Scheduled maintenance in Pittsboro and Roanoke will not impact customers. Teets said for SDI there are “no issues, SDI is very strong and healthy.”

SDI plans to increase shipments from Butler to The Techs due to supply issues in the marketplace. US Steel Mon Valley provides about half of The Techs steel but the rest has been from the marketplace since the demise of Sparrow Point.

Despite the chilling results in Q1 the company is optimistic about 2014.

Butler has a very strong order book and new orders will be opened next week for June. Teets told analysts on the conference call that orders “when we closed the book, were flooding in at a phenomenal rate.” Teets said the company has had requests to open the books early as well as suggestions that they are “delaying to take advantage of the market.” Teets said that is not the case and the company always opens the order books in the fourth week for the following month.

“We have confidence that the broader U.S. economy will continue to improve and that the non-service sector portion of domestic GDP has the ability to grow at a higher rate than overall GDP, driven by strengthened asset values, domestic energy investment and increased infrastructure spending,” said Millett. “Steel consuming industries, such as manufacturing, automotive, heavy machinery and the construction market continue to grow, indicative of underlying strength in steel demand.”

Latest in Steel Mills