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An In-Depth Look at Icahn Enterprises' Segments and Strategies

PART:
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Part 12
An In-Depth Look at Icahn Enterprises' Segments and Strategies PART 12 OF 15

Why Is Icahn’s Metals Segment Incurring Losses?

About Icahn’s metals segment

Icahn Enterprises (IEP) owns 100% outstanding stock of PSC Metals (PSC) through Icahn Enterprises Holdings (IEH). IEP has 99% limited partnership interest in IEH.

PSC is one of the largest independent metal recycling companies in the United States. PSC is engaged primarily in the recycling of scrap metal. It also operates a steel product business.

Why Is Icahn&#8217;s Metals Segment Incurring Losses?

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The company collects industrial and obsolete scrap metal. It processes the scrap metal into reusable form and supplies it to its customers. Under its steel product business, it supplies secondary plates and structural-grade pipes.

Why Is Icahn&#8217;s Metals Segment Incurring Losses?

Players with higher EBITDA (earnings before interest, tax, depreciation, and amortization) margins are engaged in both steel manufacturing and metal recycling activities. IEP’s PSC Metals collects, trades, brokers, processes, and recycles metal, both ferrous (containing iron) and nonferrous (not containing iron).

Key facts about the metal recycling industry

The metals recycling industry in the United States is highly competitive and fragmented. There are many small competitors that operate locally and offer stiff competition to larger players. This is because smaller companies have lower operating costs and are able to compete more effectively on price.

Factors that affect the metal processing industry are economic conditions, labor costs, domestic and import competition, access and transportation costs, availability, and the relative pricing of scrap substitutes. Other major factors affecting the industry are import duties, ocean freight costs, tariffs, and currency exchange rates.

Metal scrap processing players such as the Commercial Metals Company (CMC), Schnitzer Steel Industries (SCHN), Steel Dynamics (STLD), and Nucor (NUE) have seen the impacts of volatile commodities and competitive markets.

In 2015, the revenues of major metal players across the globe were affected by weak crude oil prices. CMC, SCHN, STLD, and NUE’s revenues fell 12%, 24%, 13%, and 22%, respectively, compared to 2014. In comparison, the Energy Select Sector SPDR ETF (XLE) has fallen ~23% year-over-year.

Let’s understand reasons behind the losses incurred by Icahn’s metals segment.

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