Investing.com -- S&P Global Ratings has revised its outlook for Steel Dynamics (NASDAQ: STLD ) Inc. (SDI) from stable to positive, affirming its ’BBB’ issuer credit rating. The revised outlook is based on the company’s steady financial performance and decreased project risk as it nears the completion of its recent construction spending cycle.
SDI is close to completing a $2.7 billion, 650,000-ton aluminum rolling mill and continues to increase utilization and production at its new electric arc furnace (EAF) rolling mill and value-added coating lines in Sinton, Texas. S&P projects that SDI’s EBITDA generation will continue to rise over the next 1-2 years and that its debt to EBITDA ratio will remain below 1x, as it has for the last several years.
The positive outlook also reflects the potential for increased earnings as production ramps up at the company’s new assets over the next two years. S&P has also revised its assessment of SDI’s management and governance score to positive from neutral, reflecting its view of a strong and competent management team and effective risk management and internal controls.
SDI is preparing to start rolling at its new aluminum flat-rolled mill project in Columbus (WA: CLC ), Miss. in mid-2025 and expects to generate positive EBITDA by the end of 2025. The $2.7 billion project, which is nearing completion on budget, includes two satellite recycled aluminum slab centers. Upon full ramp-up by 2028, SDI expects to generate $650 million-$700 million of through-cycle EBITDA.
This project represents one of the largest investments in aluminum rolling in North America in the past 50 years. It demonstrates SDI’s strategic entry into a segment with attractive growth prospects and tight domestic output. SDI’s primary raw material, recycled aluminum, will be supplied through its OmniSource recycling platform.
In addition to this, SDI has successfully managed large-scale capital projects, most notably the completion and ramp-up of production at its EAF greenfield facility in Sinton. This $1.97 billion flat roll mill capital project, which came online in 2022, increases annual production capacity by 3 million tons. The facility is expected to reach at least 90% utilization in 2025, following a slower than anticipated ramp-up period.
SDI is expected to maintain prudent financial policies as it curtails spending, having generated approximately $13 billion of cash flow from operations over the last five years. Half of this was used for internal capital investments and the rest for shareholder dividends and share repurchases. In the first quarter of 2025, it repurchased $250 million of shares and authorized a program for $1.5 billion more.
The company is also expected to slightly increase dividends over the next 12-24 months, to $300 million-$350 million annually, and continue to execute on its share repurchase program. S&P expects SDI to maintain its prudent policies and focus on executing and optimizing assets, rather than on discretionary spending.
The revised positive outlook on SDI reflects the historical and projected strength in SDI’s operating performance, the diminished construction risk, and the potential for increased earnings contribution from the production ramp-up at its new assets over the next two years. S&P could revise the outlook to stable if cash flow deteriorated from elevated capital expenditure, shareholder returns, and weaker margins. Alternatively, the rating could be raised if SDI efficiently ramps up its Aluminum Dynamics mill and maintains metrics commensurate with a higher rating, including debt to EBITDA at or below 1.5x.
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