Steel Dynamics resumes record quarterly performance

Steel Dynamics Inc., an electric arc furnace steelmaker headquartered in Fort Wayne, Indiana, has reported financial results for the second quarter, completed June 30. SDI says it had net sales of $6.2 billion and record net income of $1.2 billion, or $6.44 per diluted share, in the quarter. Excluding the impact from nearly $77 million, or 29 cents per diluted share, in costs associated with the continued startup of its Sinton, Texas, flat-roll steel mill growth investment, SDI says its second-quarter 2022 adjusted net income was $1.3 billion, or $6.73 per diluted share.

The company’s sequential earnings totaled $5.71 per diluted share, while adjusted earnings were $6.02 per diluted share excluding costs of 31 cents per diluted share (net of capitalized interest) associated with construction and startup of the Sinton mill. While year-over-year quarterly earnings were $3.32 per diluted share and adjusted earnings were $3.40 per diluted share, excluding costs of 8 cents per diluted share (net of capitalized interest) for the Sinton mill.

“The team delivered another strong performance, achieving record quarterly operating and financial performance, including record sales, operating income, cash flow from operations and adjusted EBITDA [earnings before interest, taxes, depreciation and amortization],” Mark D. Millett, chairman, president, and chief executive officer of SDI says. “Our second quarter 2022 operating income was $1.6 billion, with adjusted EBITDA of $1.7 billion. This tremendous accomplishment displays the power of our highly diversified, value-added, circular manufacturing model—as the strength in our steel fabrication operations more than offset lower earnings in our flat-roll steel business, as realized flat-roll steel selling values declined during the quarter. Despite softening hot-roll coil steel pricing, we achieved record quarterly steel shipments of 3.1 million tons based on solid steel demand, led by the automotive, construction and industrial sectors, with energy continuing to improve.”

SDI says its second-quarter 2022 operating income for its steel operations remained historically strong at $1.1 billion. The incremental decline in earnings resulted from metal spread compression within the company’s flat-roll steel operations. Demand for its long product steel also remains strong, supporting increased average realized pricing and shipments. The average external product selling price for SDI’s steel operations decreased $22 sequentially to $1,539 per ton, while the average ferrous scrap cost per ton melted at SDI’s steel mills increased $64 sequentially to $538 per ton.

Second-quarter operating income from the company’s metals recycling operations, which are largely comprised of its OmniSource subsidiary, increased to $58 million. That figure was $48 million in the first quarter of this year. SDI attributes the growth to strong demand supporting increased pricing and related metal spread. Solid demand for ferrous scrap resulted in a 7 percent increase in second-quarter 2022 shipments relative to the first quarter of the year.

The company’s steel fabrication operations reported record operating income of $599 million in the second quarter, substantially higher than its sequential first quarter results. SDI says this is because of significantly higher selling values and strong shipments that more than offset marginally higher steel input costs. The company describes the nonresidential construction sector as strong, resulting in a near-record order backlog and higher forward pricing for SDI’s steel fabrication platform. The company says it anticipates this momentum to continue into 2023 based on these dynamics.

For the six months ended June 30, net income was $2.3 billion, or $12.14 per diluted share, with net sales of $11.8 billion. In the first half of last year, SDI’s income was $1.1 billion, or $5.35 per diluted share, with net sales of $8 billion.

First-half 2022 net sales increased 47 percent, and operating income doubled to $3.1 billion when compared with the same period in 2021. Higher earnings were driven by metal spread expansion within the company’s steel fabrication business and steel operations, as increased product pricing outpaced higher raw material costs, SDI says. The steel fabrication platform achieved record first-half 2022 operating income of $1.1 billion, materially higher than the $38 million recorded in the first half of 2021. First-half 2022 operating income for its steel operations was $2.3 billion, an increase of $615 million compared with prior-year results. The average first half 2022 external selling price for its steel operations increased $380 to $1,549 per ton year over year, while the average ferrous scrap cost per ton melted at the company’s steel mills increased $101 to $507 per ton.

“Customer order entry activity continues to be healthy across all of our businesses, conflicting with the more pessimistic emotion in the marketplace,” Millett says. “Despite softening flat-roll steel pricing, our steel order activity remains solid from the automotive, construction and industrial sectors, with energy continuing to improve. Our steel fabrication operations order backlog remains at near-record volumes and forward-pricing levels. This combined with continued healthy order activity and broad customer optimism supports strong overall demand dynamics for the construction industry.

Millett says Sinton’s startup has been “challenged with unexpected power and equipment issues that have impacted their operating time in July,” though he adds that the plan has achieved run rates of 80 percent through the hot side.

Earlier this year, SDI announced it was partnering with Aymium, an Oakdale, Minnesota-based producer of renewable biocarbon products based. SDI owns 55 percent of the joint venture, with Aymium owning the remaining 45 percent. The entity will operate under the name SDI Biocarbon Solutions LLC. Initial plans for the joint venture include construction and operation of a biocarbon production facility to supply SDI's electric arc furnace steel mills with a renewable alternative to fossil fuel carbon using Aymium's patented technology.

“We are excited about our recent partnership with Aymium,” Millett says. “We believe this strategic joint venture will cost-effectively reduce our greenhouse gas emissions, which are already materially lower than our global steel competitors. We also believe Aymium’s process can provide a renewable carbon alternative to fossil fuel for Iron Dynamics, our proprietary ironmaking operations. We have successfully trialed Aymium’s biocarbon product in our steel operations, and conservatively estimate this first facility will reduce our Scope 1 steelmaking greenhouse gas emission intensity between 20 and 25 percent, with potential upside through the use of the facility’s biogas.”

Millett also mentions the company’s recently announced plans to add a 650,000-metric-ton recycled aluminum flat-roll mill and two supporting satellite recycled aluminum slab centers. The company will invest an estimated $2.2 billion in the three facilities, with commercial production planned to begin in the first quarter of 2025.

“Our recently announced planned investment in a new state-of-the-art low-carbon aluminum flat-rolled mill continues our strategic growth, is aligned with our core steelmaking and recycling platforms, benefits many of our existing customers and provides for future value creation. Our customers and our people are incredibly excited for this growth opportunity.”