Steel Dynamics 1Q16 Earnings Call Notes

Steel Dynamics (STLD) Mark D. Millett on Q1 2016 Results

Flat rolled operated at full capacity, long product operated at 67% of capacity

“Our Flat Roll Steel divisions operated basically at full capacity for the quarter, supported by the strong auto build and construction pick up. Although sequential long products steel shipments improved 9%, our long product mills was still challenged with end market weakness, operating at only 67% of their capacity.”

Total utilization at 88% compared to industry at 71%

“For the steel platform as a whole, driven by the our flat roll operations, our production utilization rate for the first quarter 2016 increased to 88% as compared to overall industry utilization of approximately 71%.”

Price increases in flat roll are sticking

“Despite a material decline in scrap cost in the quarter, our metal spread contracted as average product pricing declined more than our actualized average scrap costs. Pricing declines were felt in all areas. However, the recent price increases in flat roll, especially for value-added coated product is sticking and we should see the positive impact in the coming months.”

Outlook for auto and construction sectors continues to be strong

“those that have been strong or recovering are also expected to continue this path, such as automotive and construction. 2016 forecast for these two largest domestic steel consuming sectors remains positive. Automotive has continued forecasting strength and overall construction spending continues to improve with additional forecasted growth in ’16.”

End markets that were weak continue to be weak, those that are strong remain strong

“honestly against the areas that were weak in 2015 will continue to be weak. Automotive remains very strong. Residential, I think although it ticked down a little bit here in the last month and so, year-over-year it’s improved and will continue to improve. Our garage door business is off the charts. So there is residential strength, we do believe. And non-residential construction for all reports from as I said macro indices and from our customers and also just the order book within New Millennium. They have year-over-year much higher backlog and quote activity right there. We feel quite optimistic that there is going to be incremental growth. The apparent consumption last year was about 108 million tons and we would love to see that growing to perhaps 111 million, 112 million tons this year.”