Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) Q1 2020 Earnings Conference Call - Final Transcript

Jan 08, 2020 • 11:30 am ET

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Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) Q1 2020 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

Thank you. [Operator Instructions] And our first question comes from Matthew Korn from Goldman Sachs. Your line is open.

Analyst
Matthew Korn

Hi. Good morning, Tamara, Richard. Happy New Year, and thanks for taking my questions.

Executive
Tamara Lundgren

Good morning. Happy New Year.

Analyst
Matthew Korn

So, on the scrap markets, you pointed out in your charts and then in your guidance for the second quarter the tailwind that's emerging from the improvement in the pricing there. Effectively, did the scrap markets reached a low enough price this past fall that we finally saw inelasticity of supply kick in? And then how much in your view has improved export pricing been a factor in also pulling up the domestic ferrous prices in your view?

Executive
Tamara Lundgren

Well, you're right. Prices did reach a level where we saw the supply flows materially dry up. And the reversal that we've seen has been driven by a couple of factors, there's several factors. There has been a reversal of destocking that we've seen. We're seeing the mill outages come to a close. We're seeing stronger export demand, easing of trade tensions. And all of this is reducing the overhang of scrap that resulted from the significant decline in prices.

Analyst
Matthew Korn

Got it. So it sounds like you feel fairly enthusiastic that this is something where we're returning to more of a normalized level in the scrap market as opposed to the depressed levels we've been seeing.

Executive
Tamara Lundgren

We are certainly trending that way. And as I noted, current prices are hovering about 10% below 10-year historical averages and that's a significant improvement from where we were when we last held our earnings call in October.

Analyst
Matthew Korn

Right. Okay. The second one I have is this. Domestic steel markets here -- the main theme these last couple of years has been the buildout of new EAF capacity, which you've cited many times over the course of your -- in your presentations. The projection that, though, this is going to be a stronger draw on scrap would be good for Schnitzer, it does seem, though, is that over these last couple of months you've heard some these integrated steelmakers that kind of want to get on the action. You got this new HBI plant coming. Others have raised the prospects of morphing [Phonetic] pig iron into the supply chain. How much of a challenge do you think this could be for your core scrap business, if at all?

Executive
Tamara Lundgren

Well, I think that scrap will always find a competitive level. And I think that is the unique aspect of scrap versus other raw materials is that it is a product where we see value and obviously consumers see value but the intrinsic cost is about collection and processing. But it's a cost that is much more variable than what you see for mined materials. So I think if you look historically, it's a product that will find a competitive level.

Analyst
Matthew Korn

Got it. Thank you very much.

Executive
Tamara Lundgren

Thank you.

Operator
Operator

Thank you. [Operator Instructions] And our next question comes from Phil Gibbs