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Steel Dynamics Management Discusses Q2 2012 Results - Earnings Call Transcript

Our overall performance was commendable in what remains a challenging environment. In the second quarter, we achieved stable sequential financial results from our steel and fabrication operations, although earnings in our metals recycling operations deteriorated as margins and volume compressed.

We reported net income of $44 million or $0.20 per diluted share on net sales of $1.9 billion for the second quarter of 2012. This matches the $0.20 reported in the first quarter this year, but is substantially lower than last year's second quarter results of $0.43 a share. It should be pointed out, I think, that the first half of 2011 was a time frame in which historically high margins and flat growth were achieved. This past quarter, the combination of increased domestic flat roll capacity and increased imports have stripped the demand of a slow U.S. economy that did not allow for that level of margin to be repeated.

Overall steel demand through the quarter remains steady, although the added burden from imports from the additional domestic flat roll capacity exerted downward pressure on flat roll pricing, muting second quarter sheet steel margins. However, long products operations did see some metal spread expansion in the quarter as product pricing decreased less than scrap roll material costs.

Our steel mills operated at 83% production utilization rate in the quarter, slightly lower than the 85% for the first quarter this year. This compares to the recent domestic industry rate of under 80%. Notably, even though nonresidential construction is still anemic, our Structural Rail division has operated at 53% utilization for the year. Rail production is held back. We increased our rail shipments over 12% this past quarter, shipping 38,200 tons. Dick and his team will continue to focus on increasing this number throughout the year.

Operating income per ton shipped for our steel operations decreased about 5% from the first quarter of $898 [ph] to a second quarter $893 [ph] a ton. Average combined steel pricing related to second quarter shipments declined $21 in the quarter, which is over 2%. And based on shipping mix, the decrease in flat roll pricing was the most prominent factor in the overall change. The cost of scrap used for the production for the second quarter declined $20 per ton charged into our furnaces.

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