Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Schnitzer Steel (Schnitzer) reported an operating loss of $4.45mn in Q1 2020 compared to a loss of $23.4mn but remains optimistic about bouncing back and reversing the trend during the rest of the year. 

 

The adjusted loss per share of $0.17 resulted from the sharp declines in market prices for ferrous, certain nonferrous as well as finished steel products.

 

In a discussion with analysts, Tamara Lundgren, president and chief executive officer of Schnitzer expressed positive expectations on reversing the ongoing trends of Q1 that include destocking by customers in finished steel, lower mill outages for scrap, stronger scrap export demand, and an easing in trade tensions.

 

The company expects prices to normalize in the coming quarters after facing a depressed price environment over the past two quarters. It expects prices—that are at 10pc below a 1o-year historical average at present—to trend up in Q2 with positive sentiment for the remainder of the year. The company has also applied a flexible sales platform to shift sales to match demand and buffer it against challenging market conditions. 

 

The company has indicated that it will focus on capital investments and productivity improvements this year. It plans to receive investments in clean copper recovery, advanced metal recovery, and heavy media zorba separation through its export facilities on the East and West Coasts. 

 

Schnitzer also plans to invest $75-80mn in new technology in at least five of its facilities by H1 2021 to help its advanced metals recovery (AMR) division produce greater yields, increase separation capabilities, reduce processing costs, and improve quality and production options. The company expects a return in excess of investments within three years.

 

In Q1, the metals producer’s AMR division pared its losses compared to the prior year period to $0.9mn compared to $23mn in Q1 2019. Its CSS mill operated at 85pc capacity utilization.

 

Lundgren indicated that in Q1 the company’s performance was affected by low levels of ferrous prices as supply flow dried up. AMR’s domestic ferrous prices were down 33pc to $195/gt in Q1 from $290/gt during the same period last year. Its export price was down 27pc to $229/gt in Q1 compared to the prior year period. 

 

Schnitzer’s Q1 domestic ferrous sales were 27pc lower at 247,000gt compared to the prior year period, while its export volumes rose 1pc to 583,000gt compared to Q1 2019.

 

When asked about the potential effect on Schnitzer from competition from HBI, pig iron and other competing raw materials, Lundgren noted that slightly more than 75pc of US raw steel production is expected to be produced by EAF’s by 2022, up from the 68pc in 2018 and far from the 55pc in 2005.

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