NEW YORK Schnitzer Steel Industries Inc. expects operating earnings from its ferrous scrap division to plunge some 60 percent to about $4 per ton during its fiscal first quarter ending Nov. 30 compared with the preceding three months, the company said in a market outlook Tuesday.
The anticipated drop is "due to the declining trend in selling prices, the impact of constrained supply volumes on production costs and the timing of shipments," the Portland, Ore.-based steel producer and scrap recycler said.
Schnitzer expects average net selling prices for ferrous scrap to drop about 5 percent during the period compared with the previous quarter, and "ferrous sales volumes are expected to decline approximately 20 percent due to softer demand resulting from the economic uncertainty, reduced flows of raw materials and timing of shipments."
During the first half of the current quarter, both export and domestic sales prices for ferrous scrap dropped about $50 per ton compared with August, "driven by significantly lower domestic utilization rates and weak economic conditions globally, which continued to adversely impact overall steel demand," Schnitzer said.
Meanwhile, the company anticipates average selling prices for nonferrous scrap will increase around 5 percent, although volumes are on course to decline nearly 30 percent from the fiscal fourth quarter ended Aug. 31.
Schnitzers metals recycling arm posted operating earnings of $13 million in its fiscal fourth quarter, down 74.9 percent from $51.7 million a year earlier, on revenue that declined 32.2 percent to $651.8 million from nearly $962 million in the same comparison (amm.com, Oct. 25). Quarterly ferrous scrap revenue fell 34.4 percent to slightly more than $485 million on the back of average selling prices that eased 14.7 percent to $378 per long ton.
In its auto parts business, Schnitzer expects a drop in commodity prices to result in a 5-percent softening in revenue compared with the previous quarter. However, its operating margin is expected to rise to nearly 8 percent "due to lower average inventory costs and normal seasonal improvements in our retail operations, including higher admissions, which more than offset the impact of lower ferrous and nonferrous selling prices."
Average selling prices and volumes in Schnitzers steel production division should be in line with the previous quarter. "Steady market conditions, combined with reduced costs of raw materials, are expected to result in operating income of approximately $3 million," the company said.
Schnitzers steelmaking business posted revenue of $90.2 million in the fiscal fourth quarter on shipments of 125,737 short tons at an average selling price of $685 per ton.
For the fiscal first quarter, Schnitzer expects net income to "be in the range of break-even" before pre-tax restructuring charges of $2 million. It cautioned that the actual financial performance could be "materially different" based on market conditions and the timing of shipments, among other factors.