Steel Dynamics Inc. (SDI), an electric arc furnace steelmaker headquartered in Fort Wayne, Indiana, has announced financial results from the second quarter of the year, reporting record net sales of $4.5 billion and net income of $702 million, or $3.32 per diluted share. Excluding costs of approximately $23 million, or 8 cents per diluted share (net of capitalized interest), associated with the construction of the company's Sinton, Texas, flat-roll steel mill, SDI’s second-quarter 2021 adjusted net income was $719 million, or $3.40 per diluted share.
In the second quarter of 2020, SDI’s net sales totaled $2.1 billion, with net income of $75 million, or 36 cents per diluted share, and adjusted earnings were 47 cents per diluted share, excluding the impact of the company's June 2020 refinancing activities of approximately $25 million, or 8 cents per diluted share, and costs associated with the Sinton mill of 3 cents per diluted share. The company's sequential first quarter 2021 earnings were $2.03 per diluted share, and adjusted earnings were $2.10 per diluted share, also excluding the impact of construction costs related to Sinton of 7 cents per diluted share.
Higher earnings were primarily the result of steel metal spread expansion as significantly higher average steel selling values more than offset higher average ferrous scrap costs across the steel platform, especially within the company's flat-roll steel operations. Compared with the first half of 2020, SDI says the average first half 2021 external selling price for its steel operations increased from $403 to $1,169 per ton. The average first half 2021 ferrous scrap cost per ton melted at the company's steel mills increased $140 to $406 per ton.
Mark D. Millett, SDI chairman and chief executive officer, says. “Our second quarter 2021 operating income increased 61 percent sequentially to $956 million, with adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of over $1 billion. We continue to achieve numerous individual operating and financial records—a truly amazing achievement and a testament to the passion and dedication of our team.”
He adds that SDI maintained “strong liquidity” while also supporting increased working capital needs, significantly growing the business and returning capital to shareholders.
"During the second quarter, steel demand remained robust as shipments and product pricing continued their positive momentum across our entire steel platform,” Millett says. “Higher steel selling values drove significant metal spread expansion across the entire platform and were most prominent within the flat-roll steel operations, as continued demand strength and historically low customer inventories persisted throughout the supply chain and supported prices. Domestic steel consumption was strong from the automotive, construction and industrial sectors, while the energy sector continued to show signs of rebounding.”
Millett also says, “Our segment operating results were exceptional. Second-quarter operating income from our steel operations was a record $1 billion and our metals recycling operations sustained strong earnings, as increased domestic steel mill utilization of 81 percent supported ferrous scrap demand and pricing. Our steel fabrication operations once again achieved record quarterly shipments and ended June with another record order backlog, as we are in the middle of the summer construction season.”
SDI’s second-quarter 2021 operating income from its steel operations was 59 percent higher than sequential first-quarter results owing to significant metal spread expansion and record quarterly steel shipments, the company says. Record flat-roll and strong long product steel selling values more than offset higher scrap input costs. The second-quarter 2021 average external product selling price for the company's steel operations increased $251 sequentially to $1,292 per ton. The average ferrous scrap cost per ton melted at the company's steel mills increased $67 sequentially to $439 per ton.
Domestic steel production continued to increase in the quarter, maintaining strong ferrous scrap demand and pricing. Ferrous prime scrap pricing indices increased about $60 to $70 per gross ton during the second quarter. As a result, second-quarter 2021 operating income from the company's metals recycling operations remained strong at $51 million, SDI says.
The company’s steel fabrication operations reported operating income of $28 million in the second quarter, almost tripling the sequential first-quarter results, according to SDI. Supported by record quarterly shipments, earnings significantly improved as pricing increased almost $350 per ton, more than offsetting higher average steel input costs. Steel joist and deck product pricing has strengthened significantly to record levels in light of strong demand and higher steel input costs. Order activity remains extremely strong, and customers continue to be optimistic concerning projects. SDI says its steel fabrication order backlog is at a record level at the end of June.
First half results
For the first half of the year, ending June 30, net income was $1.1 billion, or $5.35 per diluted share, with net sales of $8 billion as compared to net income of $263 million, or $1.24 per diluted share, with net sales of $4.7 billion for the same period in 2020. The company's first-half 2021 adjusted net income was $1.2 billion, or $5.50 per diluted share, excluding costs of nearly $43 million, or 14 cents per diluted share (net of capitalized interest), associated with the construction of the company's Texas mill.
Similarly, adjusting for the company's Texas steel mill construction costs and a June 2020 refinancing, first-half 2020 net income was $291 million, or $1.37 per diluted share, SDI says.
First-half 2021 net sales increased 72 percent, and operating income increased 258 percent to more than $1.5 billion when compared with the same period in 2020. Higher earnings were primarily the result of steel metal spread expansion as significantly higher average steel selling values more than offset higher average ferrous scrap costs across the steel platform, especially within the company's flat-roll steel operations. Compared with the first half of 2020, SDI says the average first half 2021 external selling price for its steel operations increased $403 to $1,169 per ton. The average first half 2021 ferrous scrap cost per ton melted at the company's steel mills increased $140 to $406 per ton.
SDI achieved cash flow from operations of $849 million in the first half 2021, representing a record first-half performance. The company says it also invested $587 million in capital investments, paid cash dividends of $108 million and repurchased $393 million of its common stock while maintaining strong liquidity.
"We remain confident that macroeconomic and market conditions are in place to support strong domestic steel demand in 2021 and beyond," Millett says. "We continue to see strong steel demand coupled with extremely low customer steel inventories throughout the supply chain. The automotive sector continues to be strong, despite the electronic chip shortage, and other sectors such as construction, equipment and transportation remain solid. Order entry activity continues to be robust across our businesses and, when coupled with low inventory, supports strong steel selling values. We believe this momentum will continue throughout the year and that our third-quarter 2021 earnings could represent another record performance. Based on solid domestic steel fundamentals and customer confidence, we continue to be positive regarding North American steel market dynamics. This constructive environment coupled with our strategic growth initiatives provide firm drivers for our further growth in the coming years.
"We and our customers continue to be extremely excited about our Sinton Texas EAF Flat Roll Steel Mill investment. It represents transformational and competitively advantaged strategic growth, with associated long-term value creation for all of our stakeholders. We are currently hot commissioning the value-added paint line, and we expect the galvanizing line to be operational next month. The entire Sinton team is doing a tremendous job. Due to the excessive heavy rains in Texas, actual steel production will be delayed and is now planned to start mid-fourth quarter 2021. Based on current plans, we believe shipments from Sinton could be in the range of 100,000 tons during the remainder of 2021 and between 2.2 million tons to 2.4 million tons in 2022. Based on midcycle flat roll metal spreads, we currently believe through-cycle annual EBITDA for our Sinton, Texas, flat-roll steel mill once fully operational with access to four value-added coating lines (estimated to be 2023) is likely in the range of $475 million to $525 million.
"We also plan to invest approximately $450 million to $500 million in four additional value-added flat-roll steel coating lines comprised of two paint lines and two galvanizing lines with Galvalume coating capability, a set of which will be located in the southern U.S. to provide Sinton with the same diversification and higher-margin product capabilities as our two existing flat roll steel divisions. The other two lines will be located in the Midwest to support growing coated flat-roll steel demand and to further increase the diversification and cash generation capacity of our existing Midwest operations. Based on current estimates, we believe these four lines will likely begin operating sometime in the second half of 2022.
"Our commitment to all aspects of sustainability is embedded in our founding principles—valuing the health and safety of our teams, our customers, our communities and our environment,” Millett says, referencing a recent announcement of SDI’s greenhouse gas reduction and renewable energy goals. “We have been a leader in the area for more than 25 years with our exclusive use of electric arc furnace technology, circular manufacturing model and innovative teams creating solutions to increase efficiencies, reduce raw material usage, reuse secondary materials, and promote material conservation and recycling. We are starting from a position of strength yet plan to do more. We are competitively positioned and focused toward generating long-term sustainable growth for all of our stakeholders.”