Steel Dynamics Is Optimistic about the US Steel Industry

Mohit Oberoi, CFA - Author

Aug. 18 2020, Updated 6:15 a.m. ET

Steel industry’s outlook

Steel Dynamics (STLD) reported its 1Q17 earnings on April 19. The company reported EPS (earnings per share) of $0.82 during the quarter. Steel Dynamics’ 1Q17 EPS was higher than its guidance and also surpassed consensus estimates. While Steel Dynamics’ 1Q17 strong earnings certainly helped boost sentiments, management’s commentary on the industry outlook looked equally promising.

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Macro factors

For steel companies such as ArcelorMittal (MT), AK Steel (AKS), and U.S. Steel Corporation (X), the industry outlook is as important—if not more important—than their positions in the industry. During the company’s 1Q17 earnings call, Steel Dynamics sounded optimistic about the US steel industry’s outlook. Contrary to expectations, where many market participants expect softer steel scrap and steel prices going forward, Steel Dynamics sees a stable scrap and steel pricing environment this year.

According to Steel Dynamics, the current strength in the US steel market is mainly “supply-side driven” supported by strong domestic demand. Steel Dynamics doesn’t see much import pressure this year despite record spreads between US and international steel prices.

Company outlook

Steel Dynamics’ leverage ratios look strong due to improved steel pricing. Notably, the company has a share buyback plan in place. Steel Dynamics also raised its dividend to utilize excess cash. During the company’s 1Q17 earnings call, Mark Millet, Steel Dynamics’ CEO, said that “growth, both organic and inorganic, remains our first priority.” Millet added that the company could look at assets in the downstream business, value-add side, or assets that could draw volumes from its existing facilities.

In the next part, we’ll analyze Nucor’s (NUE) 1Q17 earnings.


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