SDI sees 1Q sheet price, scrap cost headwinds

Indiana-based steelmaker Steel Dynamics (SDI) says lower prices and higher scrap costs will weigh on its first quarter profit.

SDI expects lower first quarter profit sequentially and year-over-year because of lower earnings in its sheet operations. The company also expects pricing for its steel products to decrease more than the average cost of scrap.

The Argus weekly domestic US HRC assessment has averaged $695/st through the first quarter so far, down by $100/st from the fourth quarter average.

SDI did flag recent increases in sheet prices, increased order activity and a build-up in order backlogs.

The company expects overall steel shipments to increase in the first quarter compared to the fourth quarter, and steel consumption to continue to increase throughout the year.

Earnings in SDI's metals recycling platform Omnisource are expected to increase compared to the fourth quarter on better volumes and spreads for nonferrous material, though prices are expected to be lower.

The company's steel fabrication division is expected to increase profit on higher prices and lower steel input costs. Volumes for the first quarter are expected to fall because of winter weather delays, leading to a strong backlog than at the same time in 2018. SDI said customers continue to be optimistic about non-residential construction projects leading into the summer season.

The company said it expects earnings to range between $0.88-0.92/share, down from the $0.96/share it earned in first quarter 2018 and $1.17/share earned in the fourth quarter 2018.

SDI's guidance comes less than a week after North Carolina-based steelmaker Nucor released its own first quarter guidance, where it predicted lower earnings because falling prices, which it says have likely bottomed.