SDI: More Opportunities for Consolidation in Next 12 to 18 Months

At this time, the Butler facility is running at capacity and, according to Mark Millett, “None of our business is contract from the standpoint of any fixed price. We have some arrangements where it’s – on a cost-plus basis. But I would say it’s not a whole bunch.”

According to Mark Millett comments made during the Company’s quarterly earnings conference call with analysts, flat rolled shipments were down 13 percent due to weather related issues affecting transportation and their customers. Teresa Wagler, in response to an analyst’s question, reported that their flat rolled and structural inventories increased due to not being able to get transportation out of their various mills to their customers.

Mr. Millet also told analysts that SDI has also been affected by transportation delays on the Great Lakes as their Mesabi Nugget operation did not receive raw materials necessary for testing until mid-April (fluxes & binders – iron ore is not an issue). The Company took a two week outage at their Minnesota operations due to high natural gas prices as well as the raw material issues.

Richard Teets, Jr. told the analysts that SDI had a planned 4-day outage for second quarter which has been moved to third quarter in Jeffersonville. The outage is to increase the speed on their Galvalume coating line. The outage is now planned for the month of July.

Mr. Teets also told the analysts that their sister division: The Techs, have been dealing with issues of getting supply from suppliers outside of SDI. Steel Dynamics is now supplying a larger portion than normal to The Techs out of their Butler plant.

Later in the question/answer period with analysts, Mr. Teets identified US Steel’s Mon Valley as supplying, “…about half of the tons that we consume at The Techs and the rest of it is out in the open market.” He went on to say that at one point Sparrows Point was the second largest supplier to The Techs.

He pointed out that during tight markets, “…all customers of whoever is having difficulties go shopping to their other suppliers asking for more tons. And therefore, then there’s more pricing pressure on all of the suppliers and The Techs have a harder time price-wise with all those other suppliers. And, therefore, that makes our shipping rate even less of an issue….”

Mark Millett mentioned that SDI is evaluating organic growth (within the company) and that they are focusing on “downstream opportunities.” He specifically mentioned the confidence he had in their coil coating operations. He stated that he did not want to add capacity to the marketplace but, “…I do believe that there will be opportunities over the next 12 months to 18 months where companies are reevaluating their sort of portfolios and seeing what – which businesses are core to their particular – their vision and those opportunities, I think, will come to market and we’re in great position to assess them as they do.”