Reliance Steel & Aluminum Had Strong Q1

Total tons sold increased 12.8 percent q/q and 2.5 percent y/y to 1,540,400 tons for an average selling price of $1,563 per ton. Carbon steel sales were up 17.3 percent from fourth quarter to $1.29 billion.

Mollins noted that pricing and demand are improved from a year ago and the company is encouraged by the potential for stronger infrastructure and equipment spending in the coming months.

In outlook remarks, Reliance said current demand levels are likely to remain stable or improve. The company estimates tons sold in second quarter to be flat to 2 percent higher. Increased customer demand and fewer imports are expected to support current pricing levels. Two carbon steel price increases were announced in first quarter and average selling price should increase as inventory from that period is passed through. Average selling price is expected to be zero to 2 percent higher.

Demand for automotive, which is serviced mainly by toll processing in the U.S. and Mexico, has been driven by the use of aluminum, said Jim Hoffman, executive vice president and COO. Last year was a record year for automotive aluminum demand and 2017 is expected to be the same or better. Construction for a new facility in Kentucky is on schedule and expected to be operational in second quarter 2017.

Recovery in the energy sector is moving faster than anticipated with rig counts growing and Reliance in position to support demand growth. Hoffman said the pace of drilling went up quicker than expected and has to do with a need to drill or lose land leases. Reliance supplies products for the rig completion phase (everything other than drilling) which has not yet ramped up. The company is cautiously optimistic that end market will improve in the second half of the year if drilling continues at the same pace. CFO Karla Lewis added that energy sales currently are half what they were in 2014. Steel producing mills are benefiting from pipeline activity.

Reliance received new contracts from the defense industry and will supply aluminum plate for the Joint Strike Fighter program. Reliance mostly sells heat treated aluminum product, especially aluminum plate, into the aerospace market. A 5 percent increase for heat treated aluminum plate went into effect earlier this month. “It’s been quite a while since we’ve seen an increase on aerospace aluminum plate and it’s very encouraging as we head into the second quarter,” said Bill Sales, executive vice president, operations.

Mollins said they are seeing positive sentiment from customers in April and inventory levels continue to be lean. “Generally speaking our guidance on 0 percent to 2 percent on pricing as well as demand is pretty reflective of our feelings,” he said.