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Schnitzer Steel Reports 321% Rise
in 1st Quarter Net Income

Jan. 8, 2004— Schnitzer Steel Industries, Inc. reported net income of $12.2 million on revenues of $128.4 million ($0.59 per diluted share) for the first fiscal quarter ended Nov. 30, 2003. This compares to net income of $2.9 million ($0.15 per diluted share) on revenues of $90.7 million for the quarter ended Nov. 30, 2002.

"It's a pleasure to report another strong quarter for Schnitzer Steel," said Robert W. Philip, President and CEO. "Net income was up 321% from the first quarter of fiscal 2003 on a 42% rise in revenues. Overall, the company's first quarter results ended in the range we expected with average selling prices for both ferrous metals and finished steel rising above the levels reported in the first quarter of fiscal 2003 and the fourth quarter of last fiscal year. Operating profits in our various metals recycling businesses, as well as the Auto Parts Business, showed good improvement from the first quarter of last year. The Steel Manufacturing Business also showed improvement over last year's first quarter; however, the results were lower than we anticipated due primarily to a higher-than-expected rise in recycled metal costs."

Schnitzer’s Metals Recycling Business reported operating income of $9.9 million in the first quarter of fiscal 2004, an improvement of $6.8 million (221%) over the same quarter last year. The higher operating profit was primarily caused by improvements in both sales volumes and average selling prices, which rose by 39% and 37%, respectively, over the first quarter of fiscal 2003. First quarter sales volumes are normally lower than the other three fiscal quarters of each year due to seasonal variations in demand; however, last year's first quarter sales volume was unusually low due to an intentional delay in placing orders by certain Asian customers. Ultimately, the volume was sold in the second quarter of fiscal 2003. In comparison, first quarter 2004 quarterly sales volumes were more typical, considering normal seasonal variations in demand. Moreover, this quarter's sales volumes would have been higher except that one 30,000-ton export cargo that was anticipated for the first quarter of fiscal 2004 was delayed and shipped during the first week of December 2003.

The higher first quarter 2004 selling prices were caused by increasing Asian demand, primarily from China. The higher selling prices and sales volumes were partially offset by increases in the cost of unprocessed metal coupled with rising ocean freight rates, which were 50% higher in the fiscal 2004 first quarter as compared to the prior year quarter.

Income from Schnitzer’s Joint Ventures amounted to $5.9 million for the first quarter of fiscal 2004 compared to $3.2 million in last year's first quarter. The higher fiscal 2004 quarterly income resulted from improved operating profits for the joint ventures in the metals recycling business, which were affected by many of the same factors impacting the company's own wholly owned Metals Recycling Business. The Joint Ventures recent quarterly results were also affected by shipping delays that deferred export cargoes into the second quarter of fiscal 2004.

Schnitzer’s Auto Parts Business reported operating income of $5.9 million in the first quarter of fiscal 2004, which was a $0.7 million or 13% improvement over the fiscal 2003 quarter. The profit improvement principally came from the wholesale side of the business, which experienced increasing prices for recycled metal and higher wholesale parts sales volume.

Schnitzer’s Steel Manufacturing Business reported an operating loss of $0.1 million for the first quarter of 2004, which was a $1.1 million improvement from last year's first quarter. The improved operating margin was driven principally by higher selling prices and increased sales volumes. First quarter 2004 selling price averaged $310 per ton, which was slightly less than anticipated, but was a $26 per ton (9%) improvement over the first quarter of last year. Higher selling prices were primarily caused by market price increases implemented to offset the sharp rise in raw material and energy costs. Sales volumes amounted to 163,000 tons in the first quarter of 2004, an increase of 14% from the 2003 first quarter. The higher sales volume was primarily caused by industry consolidation, modest increases in end-user demand and lower steel imports resulting from the weakness in the U.S. dollar coupled with the rising cost of ocean freight. Partially offsetting the higher selling prices and volumes was an unexpectedly sharp increase in the spot market purchase prices for ferrous recycled metals sold and brokered to the company's steel mill.

Outlook—The Metals Recycling Business normally accepts orders 60 to 90 days before shipment. Based upon the Metals Recycling Businesses' second quarter 2004 order backlog, contracted selling prices are, on average, higher than the amount realized in the first quarter of fiscal 2004, and significantly higher than the amount reported during last year's second quarter. The higher selling prices are expected to be tempered by rising ocean freight rates as well as upward pressure on the cost to purchase metal from suppliers. Sales volumes are anticipated to be in the range of 520,000 to 550,000 tons. Similar market factors are expected to affect our joint ventures in the metals recycling business.

President Bush's Dec. 4 decision to rescind the steel import tariffs is not expected to significantly affect the prices of these products going forward. The tariffs, which had affected two of the Steel Manufacturing Business's three major production lines—rebar and merchant bar products—did not significantly benefit the pricing of the company's products.

Management anticipates the domestic economy will continue to improve, which should benefit the company's Steel Manufacturing Business. However, second-quarter demand and sales volumes are traditionally the lowest of the four fiscal quarters due to seasonal and weather factors. Over the last few months, the Steel Manufacturing Business and its competitors announced a number of price increases, which led to higher selling prices. Two additional announced price increases totaling $40 per ton on rebar and merchant bar are expected to take effect in the second quarter of 2004 and should result in higher average selling prices. The higher selling prices should mitigate the rise in recycled metal and energy costs. The Steel Manufacturing Business also received $1.8 million during the second quarter as a final payment regarding an electrode price fixing settlement that was settled in favor of a number of steel mills, including the company. This amount will be recognized as income from operations during the second quarter of fiscal 2004.

Due to adverse weather conditions, the second quarter of each fiscal year is seasonably slow for the Auto Parts Business in terms of retail sales. The slower retail sales are expected to be partially offset by stronger wholesale revenues.

Overall, Schnitzer estimates its second-quarter 2004 income from operations to be in the $19 to $22 million range. This amount compares to income from operations of $13.1 million reported for the second quarter of fiscal 2003.

The company anticipates that its effective tax rate will continue to benefit from net operating loss carryforwards that were acquired as part of a 1996 acquisition as well as from Extraterritorial Income Exclusion benefits associated with certain export sales. These, as well as other factors, should result in an effective fiscal 2004 tax rate in the high twenty-percent range.

Schnitzer Steel Industries, Inc. is one of the nation's largest recyclers of ferrous metals, a manufacturer of finished steel products and a leading self-service auto parts and dismantling company. The company, with its joint venture partners, processes approximately 4.9 million tons of recycled ferrous metals per year. In addition, the company's steel mill, Cascade Steel Rolling Mills, has an annual production capacity of approximately 700,000 tons of finished steel products. The company and its joint venture partners operate primarily along the West Coast and Northeastern seaboard of the United States.

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