Steel Dynamics has been given a BBB rating and stable outlook by Fitch in light of the company’s low cost operations and positive cash flow, which has averaged roughly $700mn per annum for the last four years.
According to the rating agency, Steel Dynamics, an electric arc furnace producer, enjoys low-cost operations and has shown it can swiftly recalibrate to new, if unforeseen, demand realities. The company’s mills transact scrap locally, further reducing its costs, especially by way of competitive freight rates. Moreover, it has one of the lowest cost structures in North America. Fitch estimates 85pc of the steelmaker’s costs are variable.
Steel Dynamics also benefits from its capacity utilization, which, Fitch noted, is among the best in the industry because of its low-cost production efficiency and pull-through volumes. In the last three years, the company averaged 86pc capacity utilization—above the domestic industry’s 77pc.
Fitch indicated that the steelmaker’s product mix, which consists of both flat-rolled and long products, is among the most diverse in the domestic industry. Moreover, the company’s product array insulates it from overexposure to any single product and abeted higher capacity utilization.
At the beginning of Q2 2020, the company carried $1.235bn in cash and $1.188bbn in cash equivalents, with about $219mn of short-term investments. In addition to being in a favorable liquidity position, Steel Dynamics carries a total remaining EBITDA below twice the last few years, and Fitch forecasts a remaining ratio below 2.5 times through the ratings horizon.