February 6, 2010 / 1:00 AM / 8 years ago

Steel Dynamics orders seen steady after recent rise

NEW YORK, Feb 5 (Reuters) - Steel Dynamics Inc (STLD.O), the fifth largest U.S. steel producer, has seen business conditions improve since the start of 2010, but with U.S. economic growth still weak, its medium-term orders will likely hold steady, with some short-lived spikes.

Any surges in demand for Steel Dynamics’ products would likely result from customers taking advantage of temporary price declines in a low inventory environment, more than any stimulus-related activity, company executives said.

“Our order backlog is certainly good enough to get us through February, and we’re starting to get into March at this point,” said Chief Executive Officer Keith Busse.

Steel Dynamics executives spoke to analysts after reporting fourth-quarter net earnings of $26.7 million, or 12 cents per share late Wednesday. Its profit compares with a sizable loss for the 2008 quarter, but fell short of Wall Street forecasts.

Though orders are up in most of Steel Dynamics business segments, Busse said he thinks “things are still fairly weak out there, but business is picking up.”

He and other steel producers have said service centers, which process the mills’ steel for end users, have been unable to finance large amounts of inventory relying on the mills to hold inventory or operate with short lead times.

That leaves Steel Dynamics, which operates as a spot producer, in a strong competitive position.

“We’re doing well in the flat-rolled segment, better in (structural) beams, fairly steady in merchant bars (a commodity-grade product), certainly better in recycling, and a lot better in engineered bar backlogs” with applications in gears, axles, drive trains and suspensions for automobiles, he said.

In January, the Butler, Indiana flat-rolled division, which accounts for about half of the steel maker’s output, produced 267,500 short tons of steel.

“The mill achieved record-setting production in January. I would expect we’re not going to be at that level in February,” Busse said. “It’s not backlog related, just that there are only 28 days.”

Busse added that flat-roll order backlogs have been coming in and going out steadily at about 50,000, 60,000 tons a week.

    “The backlog hasn’t gotten a lot longer. I don’t think they’re going to as a spot guy,” the CEO said.

    Its flat-rolled backlog currently runs through March, with hot-rolled steel prices running just over $600 a ton, a fairly substantial rise from levels below $500 a few months ago.

    Backlogs for structural steel used in nonresidential construction recently went up slightly, after almost no activity for some time, but Busse expects the segment to move sideways at least through March.

    “I think people are now sensing that this is probably the bottom of that market. If your stocking has reached the bottom, there are opportunities to replenish inventories,” he said.

    He expects production capacity in the structural beam segment to remain around 40 percent throughout 2010.

    At its OmniSource Corp scrap steel processors, he said, business has been “pretty good” and continues to operate at about 75 percent of capacity, with a higher profit projected for for first quarter, partly because of higher prices amid tight scrap supplies.

    Reporting by Carole Vaporean; Editing by Richard Chang

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