Steel Dynamics, Inc. announced third quarter 2020 financial results, with net sales of $2.3 billion and net income of $100 million. Comparatively, prior year third quarter net sales were $2.5 billion, with net income of $151 million. Sequential second quarter 2020 net sales were $2.1 billion, with net income of $75 million.
Third quarter 2020 operating income for the company's steel operations was $144 million, or 17 percent lower than sequential second quarter results, due to metal spread compression caused by lower realized selling values in the company's flat roll business, mostly related to lagged contract arrangements. The third quarter 2020 average external product selling price for the company's steel operations decreased $21 sequentially to $734 per ton. The average ferrous scrap cost per ton melted at the company's steel mills decreased $7 sequentially to $259 per ton.
In a press release, the company said that as states rescinded shelter-in-place mandates and manufacturing businesses, specifically the automotive sector, restarted, scrap flows dramatically improved in the third quarter. At the same time, domestic steel production increased, resulting in a meaningful increase in the company's metals recycling volumes and earnings. Third quarter operating income from the company's metals recycling operations was $15 million, compared to an operating loss of $6 million in the sequential second quarter.
The company's steel fabrication operations achieved record quarterly operating income of $39 million, based on record quarterly shipments and metal spread expansion as average selling values improved and steel input costs declined. The steel fabrication platform's customer order backlog remains strong and is higher than in 2018 or 2019. Customers remain positive concerning non-residential construction projects.
“The domestic steel demand recovery has been strong, with automotive representing the most meaningful improvement and construction continuing to be resilient,” commented Mark D. Millett, President and Chief Executive Officer. “Flat roll steel spot prices rebounded during the third quarter, as customer inventory levels were extremely low and demand steadily improved. We expect to see continued price strength and customer demand throughout 2020 and into 2021. Our steel mills operated at 85 percent of their production capability during the third quarter 2020, with the flat roll group achieving a rate of 99 percent. This contrasts to the domestic steel industry rate of 64 percent. Our continued market share gains coupled with support from our fabrication and steel processing businesses, reinforced our higher operating rates. In addition, our metals recycling platform provided a competitive advantage in sourcing ferrous scrap to support our steel mills.”
Millet also commented on the capital investment requirements related to the construction of SDI’s new electric-arc-furnace (EAF) flat roll steel mill. The company said the facility is designed to have product size and quality capabilities beyond that of existing EAF flat roll steel producers, competing even more effectively with the integrated steel model and foreign competition, as well as providing a much more environmentally friendly steel production alternative for customers. The company said construction is “going well and remains within our expected project cost of $1.9 billion, with plans to commence operations mid-year 2021.”