Steel Mills
Olympic Steel Posts Best First Quarter Ever
Written by Sandy Williams
May 7, 2021
Olympic Steel kept the momentum going at the start of 2021, achieving its most profitable first quarter ever and third best quarter overall in the company’s history.
Despite supply/demand challenges, Olympic recorded record net sales of $463 million due to higher metals pricing. Net income was $22 million, a big improvement from $600,000 in Q1 2020.
“All of our segments reported robust growth in profitability as strong demand from our end markets, combined with extended lead times to source metal, resulted in historic low inventories throughout the metals supply chain, said CEO Rick Marabito during the Olympic Steel earnings call on Friday.
Carbon steel was the company’s best performer with $24 million in EBITDA despite volumes that were impacted by supply chain disruption. Specialty metals had a record quarter with a 43% year-over-year increase in sales, while pipe and tube sales jumped 44%. Stainless steel is in short supply and now on allocation by the mills. Trade actions on aluminum have reduced imports, but Olympics’ solid relationships with mills will allow for accelerated growth in the segment, said President and COO Andrew Greiff.
“Sustained levels of demand coupled with limited metal supply caused increases in prices. We believe prices will be elevated until more balance is achieved when additional capacity comes online later in year,” said Greiff. Supply chain disruptions, however, could suppress production despite growing demand.
Marabito added that it will take most of the second half for capacity to come online, so the impact will not be felt until early 2022.
Inventories are at historic lows and lead times continue to lengthen, said the Olympic execs. Compared to pre-pandemic times, hot rolled deliveries now take more than eight weeks, compared to four or five weeks normally; cold rolled lead times, usually at six weeks, are now at up to 10 weeks. Times are similarly extended for specialty metals.
“We are optimistic that we are in the early stages of a positive demand cycle, and Olympic Steel is in excellent position to benefit from a strengthening economy and the anticipated U.S. infrastructure build,” said Marabito.
M&A activity is heating up after screeching to a halt during the beginning of the pandemic. Valuations are increasing depending on what year multiples are based on, said CFO Richard Manson. The company is well positioned to add more acquisitions to the four made in the past few years.
“We are actively continuing to look at acquisitions and we intend to continue to supplement our growth through acquisitions,” said Marabito.
Marabito expects the supply chain issues to continue for another 3-6 months, noting that it is not just metals that are tight. Global supply chains, transportation issues and labor shortages are all concerns.
It is difficult to determine when the chip shortage in the auto industry will be alleviated, said Marabito. Opinions vary widely. “I would expect that we’re going to see challenges through the balance of this year.“
Although Olympic Steel sees strength in the sectors it serves, customers are not yet back to pre-pandemic levels. “I expect as we head into the second half of the year that the demand will certainly be there. But then the question will be whether there’ll be enough steel to be able to supply it. And if there are other supply chain disruptions that will impact customers’ ability to make product,” commented Greiff.
Olympic Steel expects continued strong profits in the second quarter, sustained by demand and continued high steel prices.
“We are pretty bullish,” said Marabito. “While some demand may be disrupted by supply chain constraints, we think the overall demand environment will be pretty good. We are pretty excited about the rest of the year.”
By Sandy Williams, Sandy@SteelMarketUpdate.com
Sandy Williams
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