Steel Dynamics earnings decline from previous quarter

Fort Wayne, Indiana-based Steel Dynamics Inc. (SDI) is reporting 2024 third quarter net income of $318 million, which is down nearly 26 percent from the previous quarter’s $428 million and off by  almost 45 percent from the $577 million net income SDI enjoyed in last year’s third quarter.

In comments accompanying its earnings, SDI refers to narrower margins in its scrap-melting electric arc furnace (EAF) mill operations, but also to a $10 million loss tied to a copper trade.

“Underlying steel demand continued to be stable in the third quarter,” SDI co-founder and CEO Mark D. Millett says. “However, earnings declined sequentially based on lower average realized steel pricing—primarily within the flat-rolled operations as generally 80 percent of this business is contractually based and tied to lagging pricing indices.

“Steady steel demand, coupled with continued low customer inventory and stabilized scrap prices, resulted in stabilization and improvement in flat-rolled steel prices during the later part of the third quarter. Our long product steel operations realized a slight improvement in metal spread as scrap pricing declined more than average realized pricing.”

While profits may have narrowed, Millett says, “With our proven through-cycle cash generation, we increased liquidity to $3.1 billion while also investing $621 million in our internal ongoing growth initiatives and distributing $381 million to our shareholders through cash dividends and share repurchases.”

In terms of growth initiatives, SDI’s construction of the Aluminum Dynamics facility in Mississippi is one of the largest ones currently.

“We plan to begin operating the aluminum flat rolled mill mid-2025," Millett says. "We are pleased to further diversify our end markets with plans to supply aluminum flat rolled products with high recycled content to the countercyclical sustainable beverage can and packaging industry, in addition to the automotive, industrial and construction sectors.”

In the steel sector from July through September, the company says realized selling values for most of its steel declined more than scrap costs in the quarter.

Average ferrous scrap cost per ton melted at SDI's steel mills decreased $21 quarter on quarter to an average of $367 per ton.

That figure helped contribute to a decreased third quarter operating income in the company’s metals recycling operations of just $12 million. SDI owns and operates the OmniSource network of scrap yards in the United States.

“Shipments and pricing declined for both ferrous and nonferrous materials in the quarter,” SDI says, on the ferrous side blaming “softer demand, as many domestic steel mills had scheduled maintenance outages.”

In its nonferrous scrap trading operations, SDI experienced an "unexpected, unrealized" noncash copper hedging loss of $10 million in the third quarter, as copper prices sequentially increased significantly from August to September. Hedging typically is undertaken to prevent such one-time losses rather than leading to incurring them.

Year to date, SDI has earned net income of $1.3 billion, or $8.46 per diluted share, on net sales of $13.7 billion.

Those figures compared with net income of $2.0 billion in the first nine months of 2023, or $11.98 per diluted share, when SDI experienced net sales of $14.6 billion.

“We expect steel pricing to recover with an anticipated lower domestic interest rate environment, coupled with continuing onshoring of manufacturing businesses, and the expectation of significant fixed asset investment to be derived from public funding related to the U.S. Infrastructure, Inflation Reduction Act, and Department of Energy programs," Millett says looking ahead.

“We believe current trade actions could also reduce volumes of unfairly traded steel imports into the United States, especially for coated flat rolled steel, which could have a significant positive impact for us, as we are the largest non-automotive flat rolled steel coater in the U.S.”