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Key for Investors: Analyzing Steel Dynamics 2Q15 Earnings

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Part 2
Key for Investors: Analyzing Steel Dynamics 2Q15 Earnings PART 2 OF 7

Key Operations: What Makes Steel Dynamics a Top Producer?

Steel Dynamics’ key operations

Steel Dynamics (STLD) is among the top five carbon steel producers in the US (SPY). It has an annual production capacity of 11 million tons. Steel Dynamics produces both flat and long steel products. Last year, Steel Dynamics acquired the Columbus plant from Russia-based Severstal. This enhanced Steel Dynamics’ steel production capacity by 40%.

Steel Dynamics also has iron ore mining and metal scrap operations. This makes it an integrated steel company. In this part of the series, we’ll learn about Steel Dynamics’ key operations.

Key Operations: What Makes Steel Dynamics a Top Producer?

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Integrated business model

The above chart shows Steel Dynamics’ integrated business model. As you can see, it’s self-sufficient in iron ore. However, it has indefinitely idled its Minnesota iron ore facility due to a steep fall in iron ore prices.

U.S. Steel (X) has also halted a planned expansion at its mining operation. AK Steel (AKS) has written off its entire investment in its Magnetation JV (joint venture). The JV was engaged in iron ore mining.

AK Steel has lost more than 50% of its market capitalization over the last couple of months. The company has a huge debt burden, partially due to its acquisition of the Dearborn plant.

Scrap recycling operations

Steel Dynamics acquired OmniSource in 2010. OmniSource helps the company meet 45% of the steel scrap requirement. OmniSource also sells scrap to third party customers. In 2014, Steel Dynamics got 25% of its revenue from metal recycling. Nucor (NUE) also has metal recycling operations.

Steel Dynamics has steel fabrication operations spread across six locations. This segment accounted for 7% of Steel Dynamics’ 2014 pro forma revenue.

How have Steel Dynamics’ different business segments contributed to its 2Q15 earnings? We’ll find out in the next part of this series.

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