A decline in shipments and sales prices in Q2 2020 has prompted Steel Dynamics (SDI) to lower its earnings guidance for the quarter.
However, steel demand within the construction sector was more solid than industrial manufacturing demand in the second quarter, which could prove to be a silver lining for the company.
The recycler said that approximately $25mn in added costs related to refinancing activities in June and about $10mn in start-up costs associated with constructing the company’s Sinton Texas Flat Roll steel mill were excluded from impacting its adjusted Q2 2020 earnings.
Earnings from operations will be considerably lower compared to Q1 2020, following the temporary closures of many steel consuming businesses during the quarter due to COVID-19. Automakers and other producers in the supply chain paused operations in March and are incrementally gaining traction as production is slowly resuming this month. Many industry participants hoped for a faster recovery.
Shelter-in-place orders issued by most states in Q2 slowed down the manufacturing and associated industry in the US, which, in turn, impacted scrap as supply and collections dropped. Drastically lowered steel production further weakened scrap demand, resulting in the probability of SDI’s metals recycling operations recording an operating loss for Q2 2020.
The company expects to see improvement in steel and recycled scrap volumes in the short- to medium-term as steel consuming businesses resume operations and states reopen. SDI also noted that trade protections already in place, will provide added support for steel mill utilization in the US, by limiting volumes of unfairly traded steel products coming into the country.
Earnings from the company’s steel fabrication operations in Q2 2020 are expected to be on target with the strong results in the previous quarter. The customer order book for SDI’s steel fabrication function is strong and customers are positive regarding non-residential construction projects. Extensive project delays or cancellations have not taken place in this business.
Mark D. Millett, president and chief executive officer believes the Q2 results are remarkable in view of the conditions, and despite the projections of considerably lowered earnings compared to Q1. The company’s commercial employees and manufacturing firms have helped the producer to preserve higher rates of steel production utilization, and SDI’s metals recycling program is securing the receipt of required raw materials for the steel mills, Millett concluded.