Schnitzer Steel Industries, Inc. (Nasdaq:SCHN) announced today its market outlook for its third quarter of fiscal 2012. During the quarter, the global demand for recycled metals has remained soft and the tepid US economic recovery, together with lower than normal spring scrap flows, has contributed to tighter supplies. Margins have compressed from the second quarter, as a slight increase in average gross ferrous selling prices has been more than offset by higher costs of both raw materials and freight.
In our Metals Recycling Business, ferrous sales volumes are expected to be in line with the second quarter of fiscal 2012. Nonferrous selling prices are expected to increase 5-10%, offset by nonferrous volumes which are expected to decline 10-15% due to high production levels in the second quarter. Operating income per ferrous ton is expected to be $8-11, approximately 35% lower than the second quarter of fiscal 2012. In our Auto Parts Business, revenues are expected to increase 2-4% over the second quarter of fiscal 2012 and operating margins are expected to be 14-15%, approximately 350 basis points higher sequentially, as a result of seasonally higher admissions and parts sales. In our Steel Manufacturing Business, sales volumes are expected to decline slightly while average sales prices and utilization are expected to be in line with the second quarter, resulting in operating performance which is slightly below breakeven. Actual financial performance is subject to, among other factors, market conditions and the timing of shipments.
Cash flows from operations are expected to further reduce total debt to total capital. Consistent with our cost reduction and continuous improvement initiatives, we expect SG&A costs to approximate the level in the second quarter. The effective tax rate in the third quarter is anticipated to be approximately 34%.
As supply and demand conditions improve, we are strategically positioned to benefit from the long-term global demand for recycled metals and generate higher operating leverage from recent investments in our North American supply chain and in nonferrous separation technologies.