Steel Dynamics, Inc. announced Monday second quarter 2016 net income of $142 million on net sales of $2.0 billion. Comparatively, prior year second quarter net sales were $2.0 billion, with adjusted net income of $53 million. Sequential first quarter 2016 net sales were $1.7 billion, with net income of $63 million.
Second quarter 2016 operating income attributable to the company's sheet products increased 159 percent when compared to the sequential first quarter. The company's flat roll shipments increased 8 percent, and metal spread also expanded, as price improvements outpaced increased scrap costs. Operating income from long products increased 25 percent, as shipments improved 14 percent, more than offsetting metal spread compression related to generally flat average product pricing coupled with increased scrap costs. The company's steel production utilization rate was 95 percent in the second quarter 2016, compared to 88 percent in the sequential quarter and compared to the domestic industry utilization rate of less than 75 percent.
The company's metals recycling operations achieved a meaningful improvement in profitability based on a 30 percent improvement in ferrous metal margin, combined with increased shipments. Second quarter 2016 operating income from the metals recycling operations was $15 million, compared to $6 million in the sequential quarter. Ferrous scrap demand and pricing improved due to increased domestic steel mill utilization.
The company's fabrication operations achieved second quarter 2016 operating income of $24 million, compared to $32 million in the sequential first quarter. Shipments were relatively flat in the quarter; however, as predicted, metal spread compression occurred as product pricing declined and raw material steel costs continued to increase.
"Steel customer inventory levels have moderated and import levels have declined," said Mark D. Millett, President and Chief Executive Officer. "When combined with steady underlying demand, the result has been an improvement in domestic flat roll steel producer utilization, and we anticipate improved flat roll metal spreads in the third quarter 2016. However, aside from the construction sector, long product steel demand is generally challenged, and selling values are under pressure from excess domestic production capability. The robust increase in second quarter 2016 long product group shipments was due, in part, to customers buying ahead of the significant scrap cost increase in May. While we also anticipate metal spread expansion for our long products group in the third quarter 2016, lower shipments related to the customers buying ahead could offset related margin gain.”