A recent tumble in steel and aluminum prices will significantly hurt Sims Metal Management’s financial results, the company informed investors.
Sims Metal Management (SMM), the parent company for global e-scrap processor Sims Recycling Solutions, issued a trading update on Sept. 16 pointing to fallout from the escalating trade wars and impacts from decreasing automobile sales.
In early September, steel mills significantly reduced their scrap purchases and outlook for future purchases, sending prices downward for some key grades of metals, according to the announcement.
As a result, SMM expects its financial performance for the second half of this calendar year – or the first half of the 2020 fiscal year – to be significantly worse than the prior-year period, the company stated.SMM makes most of its money from processing and selling scrap metals other than e-scrap, including junked automobiles. But ferrous and non-ferrous metals from recycled electronics remain a component of revenue for Sims Recycling Solutions, which also recovers and sells precious metals and brings in revenue from ITAD services.
In the release, Alistair Field, CEO and managing director of SMM, said pricing is currently so low that it may not be worth it for some of SMM’s suppliers to gather and sell scrap metal. “Alternatively, some suppliers may choose to sit on inventory until the price recovers,” he said.
Higher costs on freight front
At the same time, SMM has seen an increase in deep sea freight prices over the past month. Under these market conditions, SMM can’t recover the added freight costs by paying suppliers less for material, Field stated.
Learn more in person
Critical trends in commodity pricing, freight and more will be covered in a session organized by the Institute of Scrap Recycling Industries (ISRI) at next week’s E-Scrap Conference and Trade Show. The session will include Joe Pickard, who is ISRI’s chief economist, as well as other experts. The E-Scrap Conference and Trade Show is taking place Sept. 23-25 at the Hilton Orlando. Register today at e-scrapconference.com.It’s still too early to know whether the low prices will persist into early next year, he said.
“When the market recovers, it often does so very quickly,” he stated. “Regardless, our strategy remains sound, and the business is well positioned to deliver good returns through the commodity cycle. While our focus has always been on disciplined capital expenditure and required returns, we will be particularly cautious during this market downturn.”
Last month, Sims Recycling Solutions reported that its earnings before interest and taxes (EBIT) totaled around $17.6 million during the 2019 fiscal year, down 16.9% compared with 2018.
Its profit margin was 3.5%, down from 4.1%.
