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SDI sees promising signs in auto, construction markets

Keywords: Tags  Steel Dynamics, Mark Millett, automotive, manufacturing, nonresidential construction, iron ore, Samuel Frizell

NEW YORK — Steel Dynamics Inc. (SDI) sees promising signs for the year ahead in automotive and nonresidential markets, as well as benefits from its own iron ore production, company executives told investors during a Jan. 29 conference call.

"The ABI (architecture billings index) has been (positive) for five consecutive months," SDI chief executive officer Mark Millett said. "The nonresidential construction market is still challenging, (but) we see selective areas that show signs of improvement. ... We are poised to take full advantage when the construction market recovers."

An economically challenging 2012 did not prevent Fort Wayne, Ind.-based Steel Dynamics from doubling its fourth-quarter net income to $61 million compared with the same period a year earlier despite sales that fell 8.3 percent to $1.71 billion, but the company’s full-year net income tumbled 41.2 percent to $163.6 million on sales that declined 8.8 percent to $7.29 billion (, Jan. 28). Executives attributed the sales decrease to tepid 2012 market conditions, poorer margins between volatile scrap prices and steel selling prices, and uneasy consumer confidence.

Millett said 2012 was a "tough year for business as global economic conditions remained difficult. Gross domestic product was weak. Consumer confidence waned. We had angst about U.S. elections. Nonetheless ... we believe there are reasons for optimism in 2013 and the years ahead." He pointed to signs of a returning manufacturing sector in the United States as a boon for domestic markets, citing increased natural gas development and iron ore production as growth drivers.

SDI has expanded into iron ore production in recent years, vertically integrating its supply chain by investing in Minnesota ventures. The company’s 81-percent-owned subsidiary, Hoyt Lakes, Minn.-based Mesabi Nugget LLC, produced 20,000 tons of iron ore per month in November and December and is aiming for annual production of 350,000 tons by the end of 2013 at its Minnesota locations.

"One of the key aspects of our success has been controlling our costs as far into the supply chain as possible," Millett said. "Production at our Minnesota operations ... could have fully supported our steel production requirements (last year). ... This is a pivotal achievement in lowering our iron ore input costs."

Iron ore prices will be one of several factors that will determine SDI’s success in 2013, along with the continued relative strength of the auto and manufacturing markets, he said.

"Supply chain inventories remain relatively tight. Automotive remains incredibly robust. Manufacturing in our mind is robust. And I think lead times have moved back," Millett said. "Obviously (iron) ore pricing is appreciating and there could be some market support from (all) those drivers."

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