Sims posts loss, maintains 2H outlook

Global recycling group Sims Metal Management expects to swing back into profitability in the second half of its fiscal year after it reported a first-half loss due to steep drops in ferrous scrap and zorba prices.

The Australia-based global recycler reported a $23mn Ebit loss in the first half of its fiscal 2020 year ended 31 December.

Despite the challenges through the first half of its fiscal year, Sims expects underlying earnings before tax (Ebit) to range between $40mn-60mn in the second half of its fiscal 2020.

Sims warned of potential impacts of the coronavirus on both ferrous and nonferrous scrap demand and prices, a gradual recovery of the Turkish economy and aggressive competition on the buy-side moving forward.

The recycler expects substantial growth in nonferrous volumes following China's reclassification of high-quality non-ferrous scrap items from being solid-waste items to an industrial raw material, which will not be subject to import quotas after 1 July.

The reclassification will allow roughly 90pc of Sims' nonferrous grades of scrap to be imported into China, validating its push to install zorba cleaning and separation technologies there over the last year.

In the second half of 2019, the average cif China zorba price was 43.4¢/lb, down by 23pc from same period in 2018.

Sims sold 3.5mn t of ferrous scrap across its geographic segments in its fiscal first half ended in December, down by more than 11pc from the same period a year earlier.

Nonferrous sales volumes were marginally higher, while brokerage sales volumes dropped by nearly 5pc to 731,000t over the same period.

Intake volumes for the group totaled 4.4mn t in the fiscal first half 2020, down by nearly 11pc from 4.9mn t a year earlier.

North American division breaks even

The company's North American metals and SA Recycling divisions were stung in the first half of fiscal 2020 by steep declines in metal margins following a drop in ferrous scrap and zorba prices.

Adding to the challenges over this period was heavy flooding in some southern states, which adversely impacted the regional scrap flows.

Shipments from its North America metals division fell by nearly 10pc for the first half of the fiscal year over the prior period, totaling 2.3mn t.

Despite the challenges the division broke even on its Ebit for the North American division.

SA Recycling was broadly impacted by the same market influences, but was more exposed to the deterioration in the nonferrous scrap market.

The drop in zorba prices materially eroded margins for the division and left it unable to lower shredder feed prices without adversely and seriously affecting its intake volumes.

The installation of zorba separation technology at its Anaheim, California, facility was completed over the period.

Sims UK reshuffles with consolidation of ops

Sims' UK Metals division experienced headwinds in the first half of fiscal 2020, as unsold inventory in the first quarter was later sold at a loss, while low ferrous and zorba prices led to intense competition for reduced volumes.

Underlying Ebit for the UK Metals division registered a loss of $28.4mn in the first half of the fiscal year compared with the same period a year earlier.

Sales volumes shrank by over 14pc on the year, due to low prices and reduced ferrous scrap inflows.

Sims has restructured the UK Metals division by closing 11 sites and consolidating the operations across four larger sites in order to maintain fiscal year 2019 volumes.

By Brad MacAulay