EUR 850.00 For Business Accounts Only

Morningstar | We Forecast Gradual Metal Margin Contraction For Steel Dynamics Over Our Forecast Period

One of the largest U.S. steelmakers by production volume, Steel Dynamics enjoys a low-cost position on the steelmaking cost curve. A relative newcomer to the U.S. steel industry, having been incorporated in 1993, Steel Dynamics melts ferrous scrap metal to produce a wide variety of steel products via its fleet of seven electric arc furnaces. The company’s operating model offers low operating leverage relative to its integrated peers as well as significant flexibility with regard to both the scale and scope of steel production.Unlike most steelmakers that predominantly produce long-rolled steel for construction, manufacturing, or railway applications, flat-rolled steel accounts for more than half of Steel Dynamics’ production volume. To facilitate the production of high-strength sheet steel, the company’s flat-roll operations in Butler, Indiana, and Columbus, Mississippi, use ferrous scrap along with molten pig iron via two dedicated EAFs. The application of high-iron-content pig iron allows for the production of higher-strength steel than the use of scrap alone. As a result, the company is able to enjoy the flexibility of minimill production while competing in an arena otherwise dominated by blast furnace operators at favorable unit costs.Because its steelmaking operations depend heavily on ferrous scrap metal, Steel Dynamics vertically integrated by acquiring metal recycler OmniSource in 2007 for a total cost just above $1 billion. Additionally, the company invested more than $300 million in its Mesabi Nugget joint venture with Kobe Steel that was designed to provide iron units to its EAFs at favorable costs. Management decided to idle the operation in May 2015, however, as the associated cash costs were not competitive with global pig iron export prices. The company now plans to construct a new flat-roll mill at a cost just shy of $2 billion that will be operational in 2021.Aside from the steel and metal recycling segments, Steel Dynamics operates a steel fabrication business that primarily produces joists and decking used in nonresidential construction, although this business generates a relatively small proportion of companywide operating income.