NEW YORK A capacity shortfall coinciding with low inventory levels and increased end market demand is helping boost steel sheet margins, according to Steel Dynamics Inc. (SDI) president and chief executive officer Mark Millett.
"On the sheet side of our business, automotive has been very, very strong for us. Manufacturing is also good," he said during an earnings conference call Oct. 17. "We have a lot of optimism in the residential and HVAC (heating, ventilation and air conditioning) sector. We see inventories still being incredibly tight through the supply chain."
The Fort Wayne, Ind.-based companys flat-rolled shipments increased to 740,279 tons in the third quarter, up 5.1 percent from 704,290 tons in the previous quarter and 15.9 percent higher than 638,776 tons in the same period last year.
The company shipped about 295,000 tons of hot-rolled, 117,000 tons of pickled and oiled, 26,000 tons of cold-rolled product, 127,000 tons of hot-rolled galvanized, 52,000 tons of cold-rolled galvanized, 105,000 tons of painted material and 19,000 tons of galvalume.
The companys fabrication segment continued to be a bright spot, SDI said, registering its sixth consecutive profitable quarter since the downturn of the nonresidential sector. "Increased demand for construction-related steel products is clearly visible on our order backlogs," Millett said, noting that the companys flat-rolled, construction-related products also have seen "material" improvement.
However, the economy is weaker than it should be, Millett said, particularly "under the cloud of government shutdown" and the "fear of a financial default" along with "political headwinds."
As a result, market conditions have prevented the company from leveraging its full production capacity, leaving some 1.5 million tons of steel capacity not utilized in 2013, particularly due to a lackluster nonresidential construction market. "We have greater leverage in the construction sector than most," he added.
U.S. steel producers have announced a round of sheet price increases in recent weeks, with rumors of another hike around the corner. Company executives recognize that while the market has tried to push back, there has been some traction.
"Theres been an upward pressure ... (but) needless to say, I think the market is always pushing back," Richard Teets, SDIs president and chief operating officer for steel, said.
Lead times for the steelmakers hot-rolled product are around four weeks, while coated products are "almost through the end of the year," he added.