Sims warns of breakeven quarter on weak market conditions
Shares in metal recycler Sims tanked on Monday after the company warned it was heading for a breakeven quarter due to persistent weakness in market conditions.
Shares in metal recycler Sims tanked on Monday after the company warned persistent weakness in market conditions, both domestically and abroad, remained a drag on earnings, which were likely to break even in the first quarter.
In a trading update to investors, the multinational reiterated concerns aired during the company’s recent full-year earnings announcement last month, warning steel demand remained subdued in the early stages of the new fiscal year.
The company noted that competition for scrap metals remained strong, but inflow was subdued, and that trend squeezing on margins.
“August management accounts are now nearing completion and, when combined with September trends, it is clear that weak market conditions have not abated,” the company said on Monday.
“Furthermore, the previously resilient US domestic market is showing signs of weakening.”
The company said it expected break-even EBIT in the first quarter, subject to the timing of shipments and the final purchase price for scrap metals.
Sims shares were trading more than 12 per cent lower on Monday at $13.53.
The company released its full-year results on August 15, revealing EBIT had fallen by 62.1 per cent in the 12 months to June to $293m, due to subdued global steel demand and prices, and inflationary pressures across the business.
At the time of the earnings announcement, UBS analyst Lee Power said in a note to clients: “We see the 1HFY24 outlook as much more negative than positive with demand subdued, inflows soft and little sign of an improvement in Turkish volumes.”
Sims expects the rebuilding of earthquake affected regions in Turkey to generate “significant” demand for steel products in the region.
Sims’ largest business is in traditional scrap metal recycling, but the company is also eyeing opportunities in emerging areas including electric vehicles and refurbishing and reusing computer hardware.
It is also looking to capitalise on the steel industry’s transition to low emissions methods, including the use of electric arc furnaces, which use large volumes of recycled metal.
The steel industry accounts for about 7 per cent of global carbon emissions, and the move from traditional blast furnaces to electric arc furnaces is seen as a major opportunity for Sims as it positions itself as an important player in the greening of industry.
On Monday Sims said it remained confident in the medium and long-term fundamentals, with demand for recycled metal expected to be driven by infrastructure spending, the decarbonisation of steelmaking, including the growth of electric arc furnaces, and the electrification of products that are currently carbon intensive.
However analysts at RBC expect more earnings downgrades to come with a second quarter recovery “unlikely to be as robust” as the prior corresponding period.
“That said, we are mindful that even with market conditions softening in the domestic market, SGM should gain some protection through its recent acquisition of Baltimore Scrap Corp.”
Sims expects to complete the $US177m ($A277m) acquisition of US-based metal recycler Baltimore Scrap Corp in October.
The US company operates 17 facilities across Maryland, Virginia, Pennsylvania, New York and New Jersey, with annual sales volumes of about 600,000 tonnes.
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