Steel Dynamics’ spectacular growth
The growth in the steel industry in any economy resembles the economic activity. In developed countries like the U.S., steel consumption broadly follows the overall gross domestic product (or GDP) growth rates. However, developing economies can grow at a much higher rate for an extended period—for example, China.
Steel Dynamics’ growth rate
Steel Dynamics has been able to grow at a rate much higher than the industry average. The chart above shows Steel Dynamics’ growth in shipments since its inception. As you can see, the shipments have grown at a compounded annual growth rate (or CAGR) of 13% since its inception. It touched 6.1 million tons last year.
The growth can be divided into two phases—until 2008 and after 2008. This will help us analyze the pre-recession growth and the subsequent recovery. As you can see in the chart above, Steel Dynamics grew at a CAGR of 18% from its inception to 2008, but the growth slowed down after 2009.
What factors made Steel Dynamics grow?
Steel Dynamics’ growth was led by organic growth and acquisitions. The growth was also led by the buoyant steel market between 2004 and 2007. The steel shipments almost doubled during this period as you can see in the chart above.
Steel Dynamics (STLD) has seen its growth slowing down in the past few years. This has been led mainly by weak steel market conditions. This challenging environment has also impacted other steel companies like ArcelorMittal (MT), U.S. Steel Corporation (X), and Nucor Corporation (NUE). Since the SPDR S&P Metals and Mining ETF (XME) invests in steel companies, its performance has also slowed down.
Steel Dynamics hasn’t made any major acquisitions during this period. Recently, Steel Dynamics acquired the North American operations of Severstal. This is expected to boost Steel Dynamics’ sales in a big way. We’ll discuss this acquisition in greater detail in the next parts of the series.