Service Centers

Friedman's Quarterly Results Reflect Hedging Loss

Written by Tim Triplett

February 15, 2022

With three quarters of its fiscal year in the books, Friedman Industries Inc. says it is on track to achieve a record year – but not without a few bumps in the road. The Texas-based steel processor and manufacturer reported a net loss of $2.96 million on sales of $51.66 million in its third quarter ended Dec. 31, 2021, after taking a $13 million loss related to its hedging of hot rolled coil futures.

“The historic rise in steel prices reached a peak in September 2021, and we experienced declining steel prices throughout the 2021 quarter,” said Friedman President and CEO Michael J. Taylor. “With prices starting to decline, we experienced physical margin contraction during the quarter, but margins remained well above historical averages. Our sales volume for the 2021 quarter was negatively impacted by customer reactions to the shift in steel prices. Physical results for the quarter were not enough to overcome the loss associated with our financial hedges.”

Friedman remains committed to its hedging strategy, which helped the company manage its price risk in 2021, Taylor added. “The utilization of risk management gave us the ability to keep sufficient inventory levels during this historic price cycle, which was critical in maintaining customer relationships, capitalizing on opportunities and enabling what will be the most profitable fiscal year in our history.”

Sales by Friedman’s coil segment for the 2021 quarter totaled $41.80 million, up from $21.67 million in the comparable 2020 quarter. The average selling price increased from approximately $665 per ton in the 2020 quarter to $1,899 per ton in the 2021 quarter. Inventory tons sold decreased from around 32,000 tons in the 2020 quarter to 29,000 tons in the 2021 quarter.

The company’s Tubular segment sales totaled $9.86 million in the 2021 quarter, up from $6.83 million in the 2020 quarter. The average selling price increased from $616 per to $1,111 per ton quarter over quarter. Tons sold decreased from 11,000 tons in the 2020 quarter to 10,500 tons in the 2021 quarter.

Friedman expects its new $21 million coil processing facility in Sinton, Texas, to begin operations in August 2022, rather than April, after a four-month delay in electrical infrastructure. The 70,000-square-foot facility will be located on the campus of Steel Dynamics Inc.’s new flat rolled mill in Sinton and will house one of the world’s largest stretcher leveler cut-to-length lines, capable of handling material up to 1-inch thick, in widths up to 96 inches and yields exceeding 100,000 psi.

“We are excited about the future of our new Sinton facility and the growth opportunity it provides for the company,” said Taylor. “After an initial ramp-up period, we expect the facility’s annual shipments could be in the range of 110,000 tons to 140,000 tons for fiscal 2024.”

Headquartered in Longview, Texas, Friedman is a manufacturer and processor of steel products with operations in Hickman, Ark., Decatur, Ala., and Lone Star, Texas, plus the facility under construction in Sinton.

By Tim Triplett, Tim@SteelMarketUpdate.com

 

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