Steel Dynamics reports significantly stronger earnings for Q1 2010

First quarter net sales of $1.6 billion were 32 percent higher than net sales of $1.2 billion in the fourth quarter of 2009, and 91 percent higher than net sales of $815 million in the first quarter of 2009. Sequentially, shipping volumes in all operations except fabrication increased from the fourth quarter, and were significantly higher than the year-ago quarter. Steel shipments for the first quarter were 1.4 million tons, 20 percent higher than the fourth quarter. Steel segment profit margins came under slight pressure as SDI's average scrap cost per net ton charged increased $56 compared to the fourth quarter, while average external steel selling prices for the first quarter increased $50 per ton to $736 from $686 per ton in the fourth quarter. In metals recycling, OmniSource, a wholly-owned subsidiary of SDI, reported ferrous metals shipments were 1.2 million gross tons, up 15 percent from the fourth quarter, and nonferrous shipments were 238 million pounds, up 17 percent from the fourth quarter.

"In the first quarter, the company's steel operations gained momentum, producing operating income of $138 million, or $99 per ton shipped, while OmniSource, which benefitted from increased volumes and higher scrap prices, achieved operating income of $43 million during the quarter," said Keith Busse, Chairman and CEO. "As we continue to compete aggressively for orders, our employees have moved quickly to ramp up production as opportunities arise, shipping quality products to meet customer needs while doing an excellent job in controlling costs.

"The first quarter's strength in steel operations centered on sheet products and special-bar-quality (SBQ) steels. The Flat Roll Division ran at capacity in the first quarter while The Techs approached 85 percent utilization. Both continue to have strong order books. Demand for SBQ strengthened dramatically in February and continued in March, which has resulted in the strongest order backlog in the history of the Engineered Bar Products Division. We also have seen sequential improvement in backlogs in our other long-products steel businesses, but the structural steel market still remains very challenging as non-residential construction remains weak. We have been successful offsetting some of this weakness by serving new customers with new products. At our largest long-products division, Structural and Rail, we have achieved recent success in rail development and have obtained customer certification for our AREMA Standard Strength rail and for welded rail. We expect the volume of rail shipments to grow progressively through the year.

"In our Ferrous Resources platform," Busse continued, "we are very excited about the progress made at the new Mesabi Nugget plant in the first quarter. Our goal is to achieve self-sufficiency of iron supply for our steel operations as Mesabi Nugget production increases and complements the current supply of iron from our Iron Dynamics operation. With the rapid progress being made, we are gaining confidence that we will achieve that goal by 2011.

"The fine-tuning of the nugget-production process is going very well. After producing the first batch of nuggets early in January, the Mesabi Nugget team on February 23 made the first shipments of iron nuggets to our Flat Roll steel mill at Butler, Indiana. During the quarter, the plant shipped 7,200 metric tons of nuggets to Butler. Production should ramp up to about 12,000 metric tons in April alone, as good progress continues to be made. This progress is important to the company as we are reducing our dependence on imported pig iron," Busse said.

"As noted during our February conference call, we found it necessary to replace some of the conveyor systems at the nugget plant with improved designs. As a result of costs related to installing the equipment and incurring downtime while making the changes, the plant's operating loss for the quarter exceeded our initial estimate. The impact to the company in the first quarter was an $11 million loss before tax effect.

"In Metals Recycling, OmniSource benefitted in the first quarter from stronger flows of raw materials and greater demand for processed metals. Volumes of ferrous scrap increased during the first quarter for both industrial and obsolete grades of scrap. Ferrous scrap prices steadily increased from November 2009 through March 2010, with prompt industrial grades gaining about 69 percent and #2 shredded scrap gaining 64 percent over that period. Nonferrous metals continued to make a strong contribution to OmniSource's operating income as a result of higher pricing and stronger volumes.

"A gradually improving economy with moderate strengthening of steel demand is resulting in firmer order backlogs for our mills, which also implies continued better conditions for the scrap markets. However, we have not yet seen signs of a significant rebound in our construction-related businesses, which means these operations will likely continue to negatively impact our results. Overall, though, we now see a more stable and positive outlook for the coming quarter and second half of 2010," Busse said.