QUOTE AND NEWS
Benzinga  Sep 3  Comment 
Morgan Stanley issued a very strong view on United States Steel Corporation (NYSE: X) and Steel Dynamics, Inc. (NYSE: STLD) Wednesday morning. Viewing the steel industry as "Attractive," the bank increased its price targets by nearly 40...
Benzinga  Aug 28  Comment 
Analysts at Bank Of America raised price targets on AK Steel (NYSE: AKS) to $13 from $11 and Steel Dynamics (NASDAQ: STLD) to $26 from $23. The firm also reiterated Buy ratings on both companies. Analysts lifted steel forecasts for H214, but...
Market Intelligence Center  Aug 25  Comment 
Shares of Steel Dynamics Inc. (STLD) touched a new 52-week high of $23.38 on Aug 22. Its shares ended the day slightly lower at $23.30.Shares of this steel company, which has a market cap of around $5.6 billion, have shot up 49.5% over a year. Its...
TheStreet.com  Aug 25  Comment 
NEW YORK (TheStreet) -- Shares of Steel Dynamics Inc. are down by -1.72% to $22.90 in pre-market trading on Monday following a ratings downgrade to "neutral" from "outperform" at Credit Suisse. The firm said it lowered its rating on the steel...
Benzinga  Aug 25  Comment 
Analysts at Credit Suisse downgraded Steel Dynamics (NASDAQ: STLD) from Outperform to Neutral. The target price for Steel Dynamics is set to $23. Steel Dynamics shares have surged 46.91% over the past 52 weeks, while the S&P 500 index has...
Benzinga  Aug 25  Comment 
Forbes  Aug 22  Comment 
Shareholders of Steel Dynamics Inc. (NASD: STLD) looking to boost their income beyond the stock's 2% annualized dividend yield can sell the February 2015 covered call at the $24 strike and collect the premium based on the $1.05 bid, which...
TheStreet.com  Aug 19  Comment 
By Mike Yamamoto of OptionMonster NEW YORK -- Bullish option traders are charging into Steel Dynamics for the second time in less than two weeks.a More than 4,400 November 22 calls were purchased Monday, mostly for $1.40, according to...
Benzinga  Aug 19  Comment 
Speaking on CNBC's Options Action, Pete Najarian said that he spotted unusually high options volume in Steel Dynamics (NASDAQ: STLD). Approximately 4,000 contracts of the November 22 call options were traded Monday and investors were paying a...
SeekingAlpha  Aug 13  Comment 
By Anup Singh: Steel Dynamics (NASDAQ:STLD) has gained remarkably in the past one month. Shares of the steel player have gained 20% over the last one month, with the primary trigger being the withdrawal of Russian steelmaker Severstal from the...
TheStreet.com  Aug 7  Comment 
By David Russell of OptionMonsterNEW YORK -- Steel Dynamics has been ripping, and the bulls think it will keep running into early 2015.  OptionMonster's tracking systems detected the purchase of about 1,400 February 24 calls for 50 cents and...




 

Steel Dynamics (NYSE:STLD) is the fifth largest manufacturer of carbon steel products in the United States. STLD operates steelmaking mini-mills in the Southeast and Midwest regions, and the company has an annual steel making capacity of 6.3 million tons.[1] The company produces steel for numerous industries, including the automotive, construction, commercial, transportation and industrial machinery sectors. The company earned $3.9 billion in revenue and incurred a net loss of $8 million in 2009.[2]

As a mini-mill producer, the company produces steel using scrap metal as opposed to iron ore. This gives Steel Dynamics some advantages compared to integrated competitors, especially after the company's acquisition of its own steel scrap and iron ore sources, since it is not as sensitive to volatility in the price of iron ore. Compared to the integrated steel mill model used by competitors such as US Steel (X), the mini-mill model is traditionally less energy and labor intensive. Furthermore, there is usually less preparation time demanded from mini-mills, thus allowing quicker shifts to different projects as well as the exploration of niche markets.

Company Overview

Steel Dynamics produces a variety of different types of steel, with flat-rolled steel accounting for roughly 50% of shipments. The company ships a total of 4.8 million tons of steel. By manufacturing steel in mini-mills through the recycling of steel scrap, the company saves significant amounts of capital compared to integrated competitors, such as US Steel (X). Furthermore, the mini-mill model allows significantly more flexibility than does the integrated model, allowing Steel Dynamics to pursue smaller, highly-specialized projects.

Steel Dynamics operates in three segments:

  • The Steel Operations division manufactures a number of different types of steel, including flat-rolled, structural, rail, engineered bar products, merchant shapes, and other finished products.
  • The Fabrication Operations segment manufacture a variety of steel building components, including joists, girders, and trusses intended for the non-residential construction market.
  • The Steel Scrap and Scrap Substitute Operations process metal scrap for sale and for use in the company's electric furnaces for steel making.

Business Growth

FY 2009 (ended December 31, 2009)[2]

  • Net sales decreased 51% to $3.9 billion. The company attributes the decrease to the economic environment which has decreased the company's sales prices an sales volume. The company's gross margin fell 500 bps to 10% of net sales.
  • The company incurred a net loss of $8 million compared to a gain of $463 million in the prior year.

Trends and Forces

Steel Dynamics' mini-mill model offers advantages over integrated competitors: Integrated steel producers, such as US Steel (X), manufacture steel primarily from iron ore, requiring immense amounts of energy and consequently making production generally more expensive. Mini-mill producers instead recycle steel and metal scrap in electric arc furnaces, usually a less energy-intensive and capital-intensive process which many times leads to a better operating margin for mini-mill producers. However, both iron ore and steel scrap are traditionally volatile materials, changing in price drastically from one period to the next.

The cyclical nature of the steel industry may negatively affect STLD's short-term revenues:Over the past few years, the steel industry has enjoyed unprecedented success, with many companies posting record profits from year to year. A large part of this success is due to increased international demand for steel from emerging markets, a force that has resulted in skyrocketing steel prices. However, the domestic steel industry is traditionally cyclical. Because its success is tied to some of the biggest industries in the nation, such as the automotive and construction industries, the state of the steel industry usually reflects the current state of the general U.S. Economy. The steel industry will have to cope with ongoing turbulence in the domestic automotive industry and the subprime lending crisis' effects on residential construction. Concerning the domestic automotive industry, George Bush recently signed a law requiring higher fuel economy for automobiles, a move which may hurt the domestic steel industry as the auto makers attempt to improve fuel economy in any way possible, including the use of non-steel materials that are lighter. Since slightly more than half of Steel Dynamics' shipments are for the automotive and construction industries, further trouble in these sectors may prove detrimental to the company.

Emerging global competition in the steel industry may cut into STLD's market share: With the rise of the demand for steel in recent years, global production has increased dramatically as well. Much of the growth in both demand and production has come from China and other emerging economies. This rising demand is not set to decline in the near future; expectations consist of increases of 4.9% annually through 2010.[3] Along with this soaring demand, production is growing, with China expected to become a net exporter in the near future. However, the sagging dollar has insulated the domestic market recently from massive foreign imports and for many companies in the domestic steel industry has led to increased international demand for their products.

STLD depends on the domestic residential construction industry: Steel Dynamics is heavily exposed to the U.S. construction industry. In fact, customers in the domestic construction sector comprised almost half steel shipments. The company's products are focused mostly towards the commercial construction industry which is more resilient compared to the residential construction industry.

Competition

Steel Dynamics operates in the highly competitive domestic steel industry and is the fifth largest manufacturer of carbon steel products in the U.S. As a mini-mill producer, Steel Dynamics has notable cost advantages compared to certain integrated steel makers like US Steel (X). These advantages traditionally include lower energy and raw material input costs as well as lower labor costs. After the company's recent acquisition of Omnisource, a major steel scrap processor, the company may also have a more favorable market position compared to other mini-mill producers, such as AK Steel Holding (AKS), because of the resulting stability in Steel Dynamics' cost structure. Furthermore, because of the company's brief lifetime (it was incorporated in 1993), its steel facilities are generally newer than its competitors and thus require less lead time than competitors, allowing Steel Dynamics to explore high-margin niche markets. Steel Dynamics also has certain local and smaller advantages, such as its claim as the only producer of structural steel in the Midwest, which is one of the largest structural steel consuming regions in the U.S. The company competes with:

References

  1. STLD 2009 10-K "Our Company" pg. 2
  2. 2.0 2.1 STLD 2009 10-K "Selected Financial Data" pg. 41
  3. American Iron and Steel Institute
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