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Weaker scrap prices hit Schnitzer in fiscal qtr.

Keywords: Tags  Schnitzer Steel, Tamara Lundgren, scrap prices, ferrous scrap, nonferrous scrap, steel, Sean Davidson

NEW YORK — Schnitzer Steel Industries Inc.’s operating earnings fell 91.9 percent year on year to $1.2 million during its fiscal first quarter, with the company citing lower scrap prices and compressed margins, among other factors.

Declining sales prices, constrained supply and unfavorable timing of shipments lowered selling volumes and compressed margins in the company’s ferrous scrap business during the three months ended Nov. 30, Schnitzer said.

"As anticipated, during the first quarter of fiscal 2013 we continued to face difficult market conditions for recycled metals, including a sharp drop in both ferrous sales prices and volumes, due to soft demand resulting from slowing global growth and the weak domestic economic environment which continues to impact scrap generation," president and chief executive officer Tamara Lundgren said in an earnings report Tuesday.

Export and domestic sales prices for recycled ferrous metals dropped some $50 per gross ton during the quarter compared with August levels, driven by significantly lower domestic utilization rates and weak global economic conditions that continued to adversely impact overall steel demand, Schnitzer said.

The Portland, Ore.-based company’s metals recycling business shipped 954,662 tons of ferrous scrap during the quarter, down 22.5 percent from more than 1.2 million tons in the same year-ago period.

Exports comprised 70.7 percent of the company’s total quarterly ferrous scrap business, but the export tally slipped 26 percent to 675,212 tons from 912,939 tons in the corresponding quarter last year. Schnitzer sold 279,450 tons domestically during the quarter, down 12.5 percent from 319,451 tons a year earlier.

Similarly, average export selling prices for the quarter dropped more than those domestically. Average ferrous export selling prices fell 17.4 percent to $360 per ton from $436 per ton in the year-ago quarter, while those domestically dropped 15.7 percent to $354 per ton from $420 per ton.

Demand from export markets softened in September and October, driving average net ferrous selling prices down 5.3 percent from fiscal fourth-quarter levels, the company said.

Nonferrous scrap sales also recorded similar declines during the quarter, with volumes falling 13.3 percent to 118.9 million pounds from 137.2 million pounds in the same year-ago period. The average selling price for nonferrous scrap dropped to 95 cents per pound from $1 per pound in the same comparison.

The company’s overall scrap business took a significant hit during the quarter as a result, with metals recycling operating income tumbling 56.8 percent to $5.7 million from $13.1 million a year earlier.

The low U.S. gross domestic product and high unemployment rates have constrained scrap flows, Lundgren said during an earnings call Tuesday, adding that the consequent drop in consumer activity has limited the supply of obsolete scrap.

The supply of salvaged vehicles, which form a critical mass of shredder feed, is suffering, as the average age of cars on the road today has increased 20 percent to nearly 11 years, Lundgren said.

This has caused salvage rates to decline recently to 4 percent from nearly 6 percent, she added.

Schnitzer’s steel manufacturing business recorded a mixed quarter as total volumes sold scaled higher but average sales prices dropped from year-ago levels.

For the quarter ended Nov. 30, 2012, the company sold 129,618 short tons of finished steel, up 21.6 percent from 106,637 tons in the corresponding quarter the previous year.

Rebar sales drove that growth, accounting for 78,159 tons, up 25.1 percent from 62,487 tons in the year-ago quarter. Meanwhile, coiled products ended the quarter at 45,533 tons, up 16.4 percent from 39,120 tons in the same comparison.

However, average net sales prices for finished steel products fell 5.8 percent year on year to $680 per ton from $722 per ton.

Steady market conditions, combined with improved utilization of 70 percent and reduced raw material costs, resulted in operating income of $3.4 million for the steel manufacturing business during the quarter, nearly triple the $1.2-million operating profit recorded by the segment a year earlier.

Overall, Schnitzer posted a $1.7 million net loss on revenue that fell 27 percent to $592.8 million.

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