Steel Dynamics keeps a monopoly position in the eastern United States
Revenue of Steel Dynamics (STLD), one of the largest steel producers and metal processors in the United States, in the first quarter of 2022 amounted to $5.6 billion (+57%) with a net profit of $1.1 billion, or $5.71 per share. The company reported better than market expectations, which spurred the growth of its quotes at the pre-market on April 21.
Management notes the continued vigorous activity in order entry, emphasizing that domestic steel consumption will remain high over the next two years. The financial position of the company will largely be determined by general macro conditions, as well as the purchasing power of corporate customers. Another key support factor remains Steel Dynamics’ virtual monopoly position as a supplier of steel products on the entire east coast of the United States.
An upward trend, which leads to a record number of unfulfilled Steel Dynamics orders and maximum forecast prices for the company’s products, still characterizes the non-residential real estate construction sector. According to the issuer’s expectations, this momentum will continue until the end of 2022. In the reporting quarter, Steel Dynamics set several records to operate and financial indicators, including sales, operating profit, cash flow from operations, and adjusted EBITDA.
Operating profit from steel production and processing in the first quarter amounted to a significant $1.2 billion and $48 million, respectively. Profit from operations processing this metal increased to $467 million for the quarter, which exceeds the results for the full year 2021 due to significantly higher cost of sales and continued strong demand in the construction sector. Prices for steel beams and decks, as well as the activity of orders, remain high, but may decrease soon if we established production in China.
In the first quarter of 2022, the average selling price of products for metallurgical enterprises decreased by a little more than $100 to $1,561 per ton. The average cost of ferrous scrap per ton smelted at the company’s steel mills decreased by $16 to $474 per ton. Steel Dynamics paid quarterly dividends of $51 million, which corresponds to a 31% increase, and approved a program to repurchase 389 million of its shares from the market in the amount of $1.25 billion (equivalent to 3% of the total volume of outstanding equity securities).
Government contracts and private orders remain short-term support factors for Steel Dynamics. However, we note that the company’s indicators are sensitive to changes in macroeconomic conditions. We continue positively to assess the prospects for Steel Dynamics quotes and recommend its shares for purchase.
