Service Centers

Ryerson CEO Says Steel Industry in a Recession

Written by Sandy Williams

Ryerson Holding Corp, a distributor and processor of metals, reported revenue of $790 million in third quarter, down 6 percent from second quarter and down 16.7 percent from Q3 2014. Net income was $6.7 million compared to income of $15.8 million in Q2 and a net loss of $34.7 million in Q3 2014 which included $32.7 million in IPO-related expenses and $12.4 million in debt redemption expenses.

Ryerson shipped a total of 492,000 tons of metal in third quarter, 384,000 tons of which were carbon steel. Average selling price per ton for carbon steel slipped 5.1 percent from the previous quarter and was down 12.3 percent on a year over year basis. Net sales in the carbon steel segment were $408 million compared to $421 million sequentially and $488 million a year ago.

“Despite the pressures associated with declining industry shipments and a sharp, protracted decline in metals pricing, Ryerson’s third quarter tons shipped increased slightly and we more closely aligned our average cost inventory with current market prices,” said president and CEO Eddie Lehner. “When we peel back the macro, we are a company that continues to improve its competitive position in the industry.”

Ryerson reduced debt by $165 million in third quarter and generated operating cash flow of $30 million. The company plans to further reduce expense levels in 2016, targeting an annualized savings of $20 million by mid-year. Ryerson also expects to realize proceeds of more than $10 million from sales of non-core assets over the next three to six months.

During the company earnings call, Lehner said that it has become “increasing clear that the metals industry is effectively in the recession.” He noted that metal service center shipments have declined in four out of the last five quarters and metals commodity prices have dropped four quarters in a row.

“As per metal market conditions looking forward,” said Lehner, “it’s probably safe to say that we are closer to the bottom than the top, but we don’t know how long current conditions will last.” The company expects that to see lower commodity prices in fourth quarter.

Looking at market trends for Ryerson’s key markets, Lehner said there was a shift to consumer-driven growth between second and third quarter and an uptick in residential and nonresidential construction.

Mike Burbach, president of the Northwest Region, added that he is seeing strength in appliances and HVAC as well as some improvement in defense and heavy equipment used in construction. Oil and gas, agriculture and mining are all lagging.

Regarding inventory destocking, Lehner noted that there is still some inventory overhang but the supply chain is getting tighter.

In a discussion on the trade cases in the U.S. and around the world, Lehner said that that there is a strong probability that the trade cases will establish a floor on pricing. Lehner said the current pricing environment is unsustainable and the trade cases may help.

During the call, the Ryerson executives were asked to comment on how the competitive landscape is changing.

“Certainly, you’ve seen more bankruptcies and more closures through the metal supply chain this year than you’ve seen in the prior six years combined,” said Lehner. “And so I think there are firms out there that are reaching maximum pain points and it’s reflective of really bad weather that we’re seeing in the industry and the conditions that have really accelerated over the last four to five months.”

Kevin Richardson, president of the Southeast Region added: “We do get pockets of reports of transaction prices out there that you just shake your head and you know that somebody in a certain geography is just trying to generate cash. And it’s a price that makes no sense.”

Ryerson Holding Corporation (Ryerson Holding) is a processor and distributor of products in stainless steel, aluminum, carbon steel and alloy steel with operations in the United States, Mexico, Canada, China and Brazil. The company serves a variety of industries, including customers making products or equipment for construction, packaging, oil and gas and truck trailers.

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