SDI foresees slimmer profits in Q1

Indiana-based electric arc furnace (EAF) steel producer Steel Dynamics Inc. (SDI) has predicted narrower profits in the first quarter of 2023 compared with the closing quarter of last year.

SDI says its first-quarter 2023 earnings guidance in the range of $3.47 to $3.51 per diluted share has been affected by about 31 cents per share by costs associated with the startup of the company’s Sinton, Texas, flat-roll steel mill.

In the fourth quarter of last year, earnings were $3.61 per diluted share. First quarter earnings in 2022, meanwhile, were $5.71 per diluted share. In each of those quarters, SDI also reported the effect of costs to build and ramp up the Sinton mill.

Regarding the current quarter, SDI writes in part, “First-quarter 2023 profitability from the company’s steel operations is expected to be meaningfully stronger than sequential fourth-quarter results, based on increased shipments across the platform more than offsetting metal spread compression, as average realized selling values associated with lagging indexed-contracts declined in the quarter.”

The company, owner of Indiana-based scrap processing firm OmniSource Corp., says that business unit also is maintaining profitability into 2023. First-quarter 2023 earnings from the company’s metals recycling operations are “expected to be significantly higher than sequential fourth-quarter results,” SDI says.

The company credits “substantially stronger metal margin and volumes for both ferrous and nonferrous products” as the positive news in its recycling operations. “Selling values and demand continue to improve throughout the quarter,” SDI adds.

Steel pricing has strengthened in the first quarter, SDI says, “and steel producer lead times have extended, as steel demand is strong.” The company points to the automotive, nonresidential construction, energy and industrial sectors as continuing “to lead demand.”

The firm says ripple effects from the February 2022 Russian invasion of Ukraine continue to affect its balance sheet. “First quarter 2023 steel earnings are expected to be negatively impacted by an estimated $64 million, or 26 cents per diluted share, as the steel mills work through the higher-cost pig iron that was purchased earlier in 2022 during the early stages of Russia’s invasion of Ukraine,” SDI writes.

The news likely will be mostly good from SDI’s steel fabrication operations, with the company saying earnings “are expected to be historically very strong, but lower than record sequential fourth-quarter results, based on lower shipments due primarily to supply-chain constraints facilitated by extending backlogs for steel fabricator customers and lack of sufficient construction materials and skilled labor.”

Those conditions have resulted “in some projects being delayed to later this year,” SDI says, again pointing to the nonresidential construction sector as remaining strong, “as further evidenced by a solid order backlog with robust forward-pricing for the company’s steel fabrication platform.”

SDI concludes, “In addition, the continued onshoring of manufacturing, coupled with the robust U.S. infrastructure program and industrial build-outs, supports strong demand in the coming years.”