SDI Posts Record Q2 Profits Despite Lower Flat-Rolled Steel Prices

“Customer order entry activity continues to be healthy across all of our businesses, conflicting with the more pessimistic emotion in the marketplace,” SDI chairman, president and CEO Mark Millet said in commentary released with second quarter earnings data on Wednesday, July 20.

“Despite softening flat-roll steel pricing, our steel order activity remains solid from the automotive, construction, and industrial sectors, with energy continuing to improve,” he said.

SMU’s hot-rolled coil price stands at $875 per ton ($43.75 per cwt), the lowest level since December 2020 and down 41% from a post-Ukraine war peak of $1,480 per ton in mid/late April.

By the Numbers

All told, SDI recorded net income of $1.21 billion in the second quarter of this year, up 72% from $702.3 million in the same quarter last year on revenue that increased 39% to $6.21 billion over the same period.

Operating income from SDI’s steel division – its largest business unit – was $1.11 billion in Q2’22, up a comparatively modest 9% from $1.02 billion in Q2’21. One reason for that: Average steel selling prices were $1,539 per ton in the second quarter, down $22 per ton from the first quarter. Average ferrous costs, meanwhile, were $538 per ton, up $64 per ton from the prior quarter, the company said.

But SDI made up for any margin pressure with increased shipments. External shipments weighed in at 3.11 million tons in the second quarter of 2022, up nearly 8% from 2.89 million tons in year-ago quarter.

Lower growth rates in steel were also more than offset by a stellar showing from the company’s fabrication segment, which recorded operating income of $599.2 million in the second quarter of this year, up 21-fold from $28.45 million in the year-ago quarter. Strong non-residential construction demand has led to a near-record backlog and higher forward pricing for the fabrication division. And that momentum is expected to continue into 2023, SDI said.

Operations Update

SDI said it reached a run rate of 80% at the hot mill at its electric arc furnace sheet mill in Sinton, Texas in the second quarter.

But Sinton experienced setbacks this month because of unexpected power and equipment problems. Those have resulted in less operating time in July. “The team expects to realize meaningful improvement for the remainder of the year,” Millett said.

He also reiterated his excitement about the company’s $2.2 billion expansion into finished aluminum products with a planned new aluminum rolling mill slated for the southeastern US.

By Michael Cowden, Michael@SteelMarketUpdate.com