Sinton Will Swing to Profitability in '23 as Start-Up Pains Fade: SDI

“The challenges with AHMSA in Mexico have somewhat changed the regional market. Mexican tons are staying in Mexico, and the US market is certainly benefiting from that,” SDI chairman, president, and CEO Mark Millett said during a quarterly earnings call with investors on Thursday, Jan. 26.

AHMSA has been grappling with various financial difficulties as well as curtailed gas supplies, which have limited output, according to local media reports. The Mexican steelmaker has not responded to requests from SMU for more detail.

The result: decreased exports of Mexican sheet not only to nearby markets in the southwestern US but also as far north as the Midwest. The upshot for Sinton: “From a market perspective, we will be able to support all of the capability that the ramp up will allow,” Millett said.

Sinton

As for Sinton, it’s coating lines are running well but not at full capacity because other portions of the mill continue to “work through start-up items,” he said.

But Sinton’s hot mill has “turned the corner,” and has been operating at 65% of its capability so far in January. And there are some days when the hot mill and caster operate well above those levels, Millett added.

Supply chain issues, notably for bearings and rolls, continue to limit production at Sinton. But those problems should be resolved by the end of the first quarter, which should allow Sinton to produce more for the balance of the year, he said.

Also weighing on Sinton was high-priced pig iron, bought during the market panic following the outbreak of war in Ukraine last February. The war left steelmakers scrambling to secure volumes, with pricing almost a secondary concern.

Expensive pig iron cost SDI $80 million in the fourth quarter. SDI expects it will cost another $60 million in the first quarter as the company continues to chew through high-priced raw material inventories, SDI chief financial officer Theresa Wagler said.

But from Q2 forward, SDI will have worked through high-cost pig iron, which should provide a boost to earnings, Millett said.

Sinton, in the meantime, continues to increase output. The mill shipped 270,000 tons in the third quarter and 340,000 tons in the fourth quarter. SDI expects that trend will continue into Q1 before “significant improvement” is seen from Q2 2023 onward, Wagler said.

Wagler noted it was too early to provide full-year earnings guidance for Sinton. But, she added, “It’s going to swing to a significant positive for us in 2023.”

Sinton is benefiting not only from less import competition from Mexico but also from strong demand from the oil-and-gas sector. Line pipe and oil-country-tubular goods (OCTG) are key end-markets for sheet. And Millett said that Sinton has been approved to produce some API grades at the new mill.

Outlook

As for the broader economic outlook, SDI has seen little evidence in its order books of the “gloom and doom” in some macroeconomic indicators. “We just see strength through the year, through our lens, through our order book,” Millett said.

Residential construction is “a little off” but most other markets remain strong. That includes non-residential construction – which some analysts have pointed to as a matter of concern later in the year given a slowdown expected as a result of higher interest rates.

Order entry is not at the “frenetic” pace seen a year ago but remains “solid,” Millett said. While the company has seen some project work delayed, it has seen no project cancelations – including among warehouse clients. And the delays don’t hurt because they effectively extend the construction cycle.

SDI is also seeing increased demand from reshoring. “Reshoring is real. It truly is. And that’s going to be supportive of our business,” Millett said.

And the scale of some projects – battery manufacturing facilities, for example – is “massive” compared to more traditional construction work, he noted.

Infrastructure spending is also expected to support demand. But SDI doesn’t think that demand will kick in for another six to nine months. Millett predicted that infrastructure demand would become more pronounced this summer.

By Michael Cowden, michael@steelmarketupdate.com