The Sims Ltd (ASX: SGM) share price is having a very tough start to the week.
In morning trade, the ASX 200 scrap metal share crashed 15% to $13.16.
Why is this ASX 200 share sinking?
Investors have been selling Sims' shares on Monday after the company released a disappointing trading update.
Last month, Sims revealed that steel demand remained subdued and the scrap price was not sufficient to stimulate robust scrap supply. It also advised that competition for scrap remained strong, but as inflow was subdued, this was squeezing margins.
The ASX 200 share advised that it was facing these challenges across all regions, with some regions experiencing more pronounced effects than others.
Unfortunately, today's update reveals that trading conditions have failed to improve since its last update.
According to the release, management notes that its accounts for August, together with September trends and a deterioration in US domestic market conditions, mean that it expects its first-quarter earnings before interest and tax (EBIT) to be approximately breakeven.
This is subject to usual market dynamics, including the timing of shipments and the final purchase price for scrap to fulfil those shipments.
The medium-term outlook remains positive
One positive, though, is that management remains positive on the company's medium and long-term outlook. It commented:
While acknowledging the current challenging market conditions, the Company remains confident in the medium and long-term fundamentals of the business.
The company advised that this confidence is based on the following factors that it expects to drive medium to long-term demand for recycled metal:
- Metal-intensive infrastructure spending.
- The global decarbonisation of steelmaking, including the growth of Electric Arc Furnaces.
- The electrification of products that are currently carbon intensive.
However, this hasn't been enough to stop investors rushing to the exits this morning.
