SDI bullish on steel as China weighs on scrap

US steelmaker Steel Dynamics (SDI) remains bullish on domestic steel consumption going into 2019 after boosting third-quarter steel shipments to a record level on increases across flat and long products.

But reduced demand from China weighed on the company's raw materials segment.

"We remain confident that macroeconomic and market conditions are in place to benefit domestic steel consumption in 2019," SDI chief executive Mark Millett said in the Indiana-based company's third-quarter earnings release.

Still, "there was some hesitancy in flat-roll order activity based on customer sentiment and increased hot-rolled coil import levels," Millett said.

The pullback in flat-rolled demand helped drive a near-$100/st retreat in hot-rolled coil prices from a ten-year high reached in early-summer. The Argus domestic US HRC index fell to $828.75/st at the beginning of October from $896.75/st in August, before nudging higher this week as mills firmed price expectations but still showed a willingness to deal lower amid muted demand.

SDI shipped 2.5mn st of steel to external customers in the third quarter ended 30 September, up from 2.3mn st in the same period a year earlier.

Flat-roll shipments ticked up to 1.9mn st from 1.7mn st on higher output related to the company's acquisition of its Indiana-based Heartland cold mill. Shipments from its Butler, Indiana and Columbus, Mississippi sheet mills were little changed from the prior year.

Long product shipments rose by 24pc to 899,548st on stronger volumes across its long product mills amid reduced import levels following the US 25pc tariff on foreign steel that took effect in March.

Shipments by product group include internal and external sales.

Overall production across the company's mills ticked up to 2.9mn st from 2.5mn st.

Strong flat-roll demand also helped boost metal margins as selling prices outpaced the EAF-based producer's scrap input cost.

The average selling price across its steel products rose by $210/st to $988/st in the quarter from a year earlier, while the average ferrous input cost increased by just $47/st by comparison to $352/st melted.

But higher steel prices raised input costs for the company's fabricated steel products segment, where margin fell even as shipments ticked up to 171,578st from 160,482st.

Softer demand for aluminum and copper scrap from China amid enhanced import quality standards and trade tensions with the US weighed on SDI's raw materials segment Omnisource.

Operating profit in SDI's raw materials segment Omnisource fell to $18mn from $21mn as softer demand for aluminum and copper scrap from China amid enhanced import quality standards and trade tensions with the US weighed on selling prices.

Stronger demand for ferrous scrap from SDI's steel mills boosted Omnisource's ferrous scrap shipments up to 1.3mn gt from 1.2mn gt in the same period a year earlier. The share of sales to external customers fell to 35pc from 38pc.

Non-ferrous scrap shipments ticked up to 277mn lbs from 262mn lbs.

SDI's revenue across its segments rose to $3.2bn in the quarter from $2.4bn in the prior year as wider margins helped lift profit to $398mn from $153mn.

Through the first nine months of 2018, external steel shipments ticked up by 7pc to 7.3mn st from the same period a year earlier. Profit for the nine months nearly doubled to $986mn as selling prices rose to $916/st from $767/st, boosting metal margins by $100/st.