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SDI’s 2d-qtr. earnings slide in weak market

Keywords: Tags  Steel Dynamics, SDI, OmniSource, steel, sheet, structural steel, Catherine Ngai

NEW YORK — Steel Dynamics Inc.’s (SDI’s) net income plunged 34.9 percent year on year in the second quarter due to a challenging finished steel sector coupled with international weakness and lean inventories by the steel producer’s customer base.

Net income attributable to SDI shareholders totaled nearly $29 million in the three months ended June 30, down from nearly $44.5 million in the second quarter of 2012. That figure was also lower than the $48.2 million in net income recorded in the first quarter, the Fort Wayne, Ind.-based steel producer said late July 17.

Net sales fell slightly to $1.8 billion from $1.9 billion in the year-ago period and were flat against the first quarter’s $1.8 billion.

The steelmaker had previously said during its second-quarter guidance that it would post lower earnings due to compressed profit margins, forecasting net income in the range of 10 to 14 cents per diluted share (, June 19). Actual results for the period came in at 13 cents per share.

A number of factors were behind SDI’s weaker financial results, including a challenging sheet and structural sector, cautious customers and oversupplied steel markets.

"Slower anticipated economic growth in China coupled with suppressed economic growth in the European community influenced near-term market sentiment," Mark Millett, president and chief executive officer, said in a statement. "The persistent uncertainty in the domestic economic environment continued to influence customer buying patterns as they maintained low inventory levels. Domestic oversupply, coupled with increased quarter-over-quarter steel imports, results in decreased quarterly selling values."

In its metals recycling sector, OmniSource Corp., operating income fell 36.8 percent vs. the previous quarter to $15.8 million but more than tripled from $5.1 million in the second quarter of last year. While ferrous volumes and metals spreads remained somewhat flat, nonferrous volumes and margins "contracted meaningfully" in the quarter, Millett said, citing specific weakness in copper and stainless steel scrap pricing.

Average external steel prices were also down in the quarter, falling $8 per ton sequentially and $73 per ton year on year to $781 per ton. At the same time, total steel shipments were fairly flat in both comparisons at 1.5 million tons.

Utilization rates for SDI’s steel mills fell to 83 percent in the second quarter from 89 percent in the first quarter of 2013, caused by planned maintenance work in April at its flat-rolled and engineered bar divisions.

The company’s structural and rail division was a bright spot, with standard rail volumes increasing 20 percent from the first quarter.

The company’s results also included a $9-million loss related to its Minnesota iron ore operations, down from a $14-million loss in the first quarter. SDI owns 81 percent of Hoyt Lakes, Minn.-based Mesabi Nugget LLC.

Looking forward, the company said it remains optimistic on the back of a strong automotive market, promising housing starts data and strength in its newer projects, including its engineered special bar quality capacity expansion and premium rail product addition, scheduled to start at year-end.

"We remain optimistic as the demand for high-quality steel products has not abated," Millet added. "The automotive market remains strong, and manufactured goods is strengthening. Housing start data continues to suggest increasingly higher potential for a sustainable recovery in residential construction."

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