Sims bearish on scrap amid slower growth: Correction
Corrects brokerage sales volume in paragrah 7.
Sims Metal Management expects lower automobile sales and slowing domestic Turkish steel demand to weigh on the scrap markets in the short-term.
The Australia-based global recycler reported a 25pc drop on the year in its 2019 fiscal year earnings. The lower earnings came amid an escalation in trade tensions and slowing global growth, which pressured ferrous and nonferrous scrap prices lower.
Persistent drops in zorba and twitch prices, paired with retreating global ferrous scrap prices, significantly compressed margins for the company and resulted in reduced earnings across almost all its divisions.
Prices for CCIC-quality, 99/3 zorba cif China have plummeted over the last two years with monthly average prices in August at 43.9¢/lb, a historical low in Argus' price history. Prices have fallen by nearly 15pc since August 2018 and by roughly 32pc from the same month in 2017.
Average monthly Turkish scrap import prices for HMS 1/2 80:20 cfr Turkey hit a nearly two-year low in August 2019 at $285.80/t, the lowest since June 2017.
Sims sold 7.8mn t of ferrous scrap across its geographic segments in its fiscal year ended in August, down by 1pc from the same period a year earlier.
Nonferrous sales volumes were marginally higher, while brokerage sales volumes dropped by nearly 10pc to 1.5mn t over the same period.
The company moved its nonferrous trading office from Hong Kong to Singapore in the first half 2019.
Intake volumes for the group totaled 9.6mn t for the year, down by nearly 3pc from 9.9mn t in the previous year.
Ambitious technology investments across its divisions to improve metal extraction and recovery, including higher quality and more furnace-ready products suitable for China, began to translate to higher sales volumes and earnings in the fourth quarter of its fiscal year.
The investments included two material recovery plants in the US, four zorba separation plants in the UK, south Australia and at its Chesapeake, Virginia, and Claremont, New Jersey, facilities in the US, as well as seven copper granulation plants in the US and one each in the UK and Australia.
North America hit by lower prices
The company's North American metals and SA Recycling divisions faced headwinds in the 2019 fiscal year, including tariffs on scrap shipments to China and an accompanying drop in nonferrous prices.
Heavy flooding in some southern US states in the second quarter also negatively impacted the company's ability to move material and resulted in a reduction to scrap intake volumes.
Shipments from its North America metals division were nearly flat for the fiscal year over the prior period, totaling 4.8mn t.
The division increased its production of twitch, sabot (stainless steel scrap) and heavies by more than two-thirds in the fiscal year compared with the prior year.
The SA Recycling division was particularly impacted by the price fall in zorba, as the joint venture was unable to lower its shredder feed price without significantly lowering its inbound flow of material.
Underlying earnings before tax for Sims' 50pc share of SA Recycling fell by nearly 48pc to $36mn for the fiscal year compared with a year earlier. Sales volumes grew by nearly 6pc on the year, partially driven by acquisitions.
The SA Recycling division installed zorba cleaning technology at its Anaheim and Terminal Island, California, operations, as well as in Atlanta, Georgia, and Phoenix, Arizona, during the fiscal year.
SA Recycling plans to install zorba separation technology at its Anaheim and Atlanta facilities in the next six months.
Steel demand buoys Oceania
Strong demand from domestic steel mills in Australia and New Zealand supported margins for the company's regional divisions.
Sales volumes for these groups totaled 1.7mn t, up by 11pc from the previous year.
The New Zealand Metals division outperformed the group's other divisions because of its ability to lower buying prices in line with falling sales prices, particularly in relation to zorba.
Sims said its UK division witnessed a significant improvement in second half fiscal year earnings compared with the first half of the year on investments in nonferrous processing technology and more disciplined buying.
Sales volumes for the full fiscal year fell by 5pc to 1.6mn t, primarily driven by higher quality standards for ferrous shipments into Turkey, which impacted shipments in the fiscal first half of the year.
Ferrous volumes from the UK rose through the second half of the fiscal year but were partially offset by declines in nonferrous prices.
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Milei's bid to open Argentina's economy passes
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Higher C919 adoption to boost China's Ti demand
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