SDI Says Scrap Prices at Bottom

During the company earnings call, CEO Mark Millet noted that import levels have eased somewhat recently and the ongoing trade cases should reduce them further. Inventory levels are significant, especially for HRC which is currently seeing the most market weakness.

When asked about the trade cases during the earnings conference call, Millet said, “Generally our impression or our thought belief is that trade cases are going to be positive, varying duties to varying countries. But nonetheless a positive for our industry and imports will recede and we’ve already seen. I think the corrosion-resistant import licenses were down, actually imports were down and then the licenses were down quite dramatically. So they will have an effect.”

Scrap prices declined further in third quarter but SDI believes it pricing reached bottom and will continue sideways for the next several months. Declining scrap prices and high inventories has resulted in “hesitant ordering,” said Millet. As scrap prices stabilize and inventories normalize into 2016, domestic steel production is expected to improve. Margin expansion is not likely in the fourth quarter, said Millet, but he sees a positive pricing environment going into 2016.

The Columbus facility has had success in diversifying its product offerings, gaining 94 new customers in third quarter. Columbus, with a high dependence on the energy market, is making gains in the automotive and construction industry through valued added products. The new paint line and galvalume addition at Columbus will be operational Q1 2017, adding 250,000 tons of annual coating capability.

The fabrication operations were a strong segment for SDI in Q3 with a 17 percent increase in shipments. Operating income rose 30 percent sequentially to $37 million. SDI reports its cold rolled and galvanizing lines are running at 98 percent capacity.

Steel Dynamics expects a weak fourth quarter for the steel industry.

“We believe the current elevated level of domestic supply chain inventory, combined with the continuation of excessive steel imports and typical fourth quarter seasonality, could further erode domestic steel industry profitability in the fourth quarter 2015,” said Millett. “While underlying steel demand in certain market sectors remains steady and import levels have somewhat declined, the issue of steel imports persists.”