The ferrous space is consolidating again as a major U.S. steelmaker enters the recycling market, and a recycler and metals manufacturer streamlines its operations. This continues the trend of consolidations and vertical integrations that has rippled through the ferrous space all year.
Steelmaker Cleveland-Cliffs announced Oct. 11 it will acquire recycler Ferrous Processing and Trading Co. for $775 million. The deal is expected to close in the fourth quarter of 2021. Detroit-based FPT is among the largest processors and distributors of prime ferrous material in the U.S., representing about 15% of the domestic merchant prime scrap market. FPT currently processes about 3 million tons of material per year, about half of which is prime grade.
“Cleveland-Cliffs is entering the scrap business as a major player through the acquisition of a large scrap company,” states Lourenco Goncalves, Cleveland-Cliffs’ chairman, president and CEO. “Even more importantly, FPT has a very meaningful presence in prime scrap. With all the new flat-rolled EAF [electric arc furnace] capacity coming online in our market over the next four years, prime scrap will only become more and more scarce.”
FPT operates 22 processing facilities, with about 90% of revenues originating from its midwestern locations, primarily in Michigan and Ohio. In the year that ended Aug. 31, FPT generated earnings before interest, taxes, depreciation, and amortization (EBITDA) of about $100 million. FPT already enjoys an outsized position in automotive and industrial materials, which is expected to grow when it joins Cleveland-Cliffs. FPT was Fastmarkets AMM’s 2019 Scrap Company of the Year.
Goncalves notes that his company generates huge amounts of industrial surplus steel, thanks to its leading presence producing flat rolled steel in North America. “Cleveland-Cliffs also consumes a very significant amount of scrap in our [furnaces],” he says. “The acquisition of FPT will enhance our ability to buy back prime scrap directly from our clients, cutting the middlemen and improving the margin contribution from scrap for both Cleveland-Cliffs and for the manufacturing and service-center clients that will be able to sell scrap directly back to us.”
Ahead of its Oct. 14 quarterly earnings call, Irving, Texas-based steel and metals recycler and manufacturer Commercial Metals Co. announced Oct. 13 its board has authorized a new share buyback program of $350 million. The new plan replaces the existing program, which has $27 million remaining. Commenting on the news, Barbara Smith, CMC’s chair, president, and CEO states, “This action was made possible by the strategic transformation carried out over the last several years, which has greatly enhanced our company’s earnings capability and cash flow profile.”
CMC reported its net earnings for its fourth quarter ended Aug. 31 climbed to $152.3 million or $1.24 per share, from $67.8 million or 56 cents per share last year. During the fourth quarter of fiscal 2021, the company recorded a net after-tax charge of $1.9 million related to the impairment of recycling assets. Excluding the item, fourth quarter adjusted earnings from continuing operations were $154.2 million, or $1.26 per share, compared to adjusted earnings of $95.3 million, or $0.79 per share, in the year-ago period.
Smith notes record shipment and production levels at several of CMC’s steel mills. “Our team in Europe successfully ramped up CMC’s new rolling line, and we made meaningful progress at the future Arizona 2 micro mill site in North America,” she says. On Sept. 29, MCM reached an agreement to sell its Rancho Cucamonga, Calif., site for an expected $300 million, which will be reinvested directly into Arizona 2.
For the year ending Aug. 31, CMC reported EBITDA of nearly $747 million, compared to $661 million at the end of fiscal 2020. “Importantly, we also maintained focus on keeping our employees safe, with several operations achieving record low incident rates during the year,” Smith says.