Toronto-based Russel Metals, Canada’s second largest metals distributor, posted its best second-quarter earnings ever off strong market conditions, the company said. Driven by rising demand and constrained supply chains, pre-tax earnings totaled $178 million, up 38% from Q1 on sales of $1.07 billion. That compares to EBITDA of $32 million on sales of $588 million in the second quarter of 2020 (all figures are in Canadian dollars).
Each of Russel’s business segments generated sizable improvements in operating profit as compared to the same period a year ago and against the prior quarter. The company reported record operating profits and return on net assets for its metals service centers segment by maximizing margin opportunities due to a favorable market environment.
Russel’s steel distributors segment benefited from improved demand, higher steel prices and low inventories in the supply chain, and reported strong growth in both revenues and operating profit. Seasonality and a recovery of oil and natural gas prices helped to improve operating profits for the company’s energy products segment.
“Our mill partners have been able to deliver on what we’ve historically purchased and a bit more,” said John Reid, Russel Metals’ president and CEO. “As you look ahead into Q3 and Q4, several mill outages are planned, so we think this will continue to restrict the supplies that are coming in. Imports are coming in to give some relief, but that should wane in the coming months, and I expect we will see a restricted supply chain for the balance of Q3 and into Q4.”
Steel prices continued to rise throughout the quarter, and the service centers’ selling price per ton jumped 53% compared to the same year-ago period and up 19% versus Q1. Russel Metals’ service center shipments were up 3% compared to the previous quarter and were 25% higher than the same period one year ago, driven by rising demand to heights above pre-pandemic levels.
Steel distributors also experienced an increase in demand and selling price per ton due to product shortages and low inventory levels in the supply chain. Demand in the energy products segments continues to recover, albeit at a slow pace. These trends are not expected to wane much in the second half of the year, said company execs.
“There’s some seasonality to lead times right now. They have bounced around a little, but with no real change in inventory,” added Reid. “Mills are running at or near capacity and demand is still firm. Lead times should extend out again in the third quarter as summer comes to an end.”
Russel began divesting its OCTG and line pipe business in mid-2020 to lower its exposure to the volatile energy sector. The company has reduced its inventory of OCTG and line pipe by $129 million through Q2, exceeding its target of $100 million by the end of 2021.
On July 6, Russel completed the combination of its Canadian OCTG and line pipe business with that of Marubeni-Itochu Tubulars America Inc. into a new joint venture called TriMark Tubulars. Russel’s remaining OCTG and line pipe businesses are in the U.S., where it continues to liquidate the $23 million in remaining inventory.
Reid said that prices are still being supported by strong demand and drawn-out lead times, adding that he expects additional price lift in the near-term. “There is some sustainability to the price levels we are seeing. Most of Q3 has already been booked. North American mills are full, so as the fourth quarter unfolds I just don’t see much room for negotiations or for prices to slip.”
(Editor’s note: All dollar amounts are Canadian; 1 CAD $ = 0.80 USD $)
By David Schollaert, David@SteelMarketUpdate.com
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