Schnitzer Steel Reports Improved Second Quarter Earnings

PORTLAND, Ore.--Schnitzer Steel Industries, Inc. today reported net income for the fiscal 2007 second quarter ended February 28, 2007 of $28 million, or $0.93 per diluted share. This compares to net income of $21 million, or $0.68 per diluted share, during the second quarter of fiscal 2006. Revenues for the quarter of $604 million were 50% higher than revenues reported during the same period in 2006.

The Company reported fiscal year-to-date net income of $50 million, or $1.60 per diluted share. This compares to net income of $63 million, or $2.03 per diluted share, for the comparable period in 2006. Included in fiscal year-to-date 2006 net income for the comparable period was a gain in the first quarter of $34 million (after tax) related to the disposition of the Hugo Neu joint venture assets. Net income in 2006 was also reduced by a charge in the first quarter of $11 million relating to a reserve taken by the Company for the estimated settlement of the SEC and Department of Justice investigations into the Company’s past payment practices in Asia. Excluding the gain from the disposition of joint venture assets and the charge for the investigation reserve, fiscal year-to-date 2006 net income for the comparable period would have been $40 million, or $1.30 per diluted share.

(in millions, except per-share data)	Second Quarter 2007	Second Quarter 2006	First Quarter 2007	Year to Date 2007	Year to Date 2006
Revenues	$ 604	$ 403	$ 510	$1,114	$ 745
Operating Income	$ 47	$ 32	$ 34	$ 81	$ 49⁽¹⁾
Net Income	$ 28	$ 21	$ 21	$ 50	$ 63
Diluted EPS	$0.93	$0.68	$0.69	$ 1.60	$ 2.03
Gain on Asset Disposition	--	--	--	--	$ 34
Charge for Investigation Reserve	--	--	--	--	($ 11)
Net Income excluding Gain on Asset Disposition and Charge for Investigation Reserve	$28	$21	$ 21	$ 50	$ 40
Diluted EPS excluding Gain on Asset Disposition and Charge for Investigation Reserve	$0.93	$0.68	$ 0.69	$ 1.60	$ 1.30

⁽¹⁾ Includes $11 million charge related to SEC and Department of Justice investigations.

“We continue to be pleased with our strong operating and financial results,” said John Carter, President and CEO. “Net income in the second quarter improved by approximately 33% from both the prior quarter and last year as we continued to focus on increasing our asset utilization to take advantage of the strong markets in which we operate.”

“Our Metals Recycling Business substantially increased sales volumes and margins — the worldwide markets for scrap metal remain very positive, and our ability to ship directly to international markets from export facilities on both coasts remains a long-term competitive advantage. Our Auto Parts Business showed solid quarter over quarter and year over year improvement in financial results. Our Steel Manufacturing Business also posted good financial results despite the effects of normal seasonal slowdowns in the construction industry on the West Coast. We were encouraged by a pick-up in activity toward the end of the quarter, and the demand for steel in our markets appears to be high,” said Carter.

“Our overall operating performance was strong during the quarter,” said Chief Operating Officer Tamara Lundgren. “In the Metals Recycling Business, we saw good operational results from the two new mega-shredders installed during the first quarter, which helped increase our production and sales volumes. We look forward to the installation of similar equipment at our Portland facility this spring. In the Auto Parts Business, contributions from increased core and scrap sales offset some of the normal seasonal decline in admissions and parts sales. In the Steel Manufacturing Business sales activity increased as customers reacted to announced price increases and we were able to offset some of the higher scrap price pressure on our margins by shifting production toward higher margin products.”

Metals Recycling Business

The Metals Recycling segment benefited from record sales volumes as worldwide market conditions for recycled metal continued to be strong.

($ in millions, except selling prices; ferrous volume in thousands of long tons, non-ferrous volumes in millions of pounds)	Second Quarter 2007	Second Quarter 2006	First Quarter 2007	Year to Date 2007	Year to Date 2006
Total Revenues	$486	$ 295	$ 400	$ 887	$ 536
Ferrous Revenues	$396	$ 239	$ 315	$ 711	$ 447
Ferrous Volumes (Processing/Trading)	1,143/276	912/154	868/320	2,011/596	1,461/461
Avg. Net Ferrous Sales Prices ($/LT)⁽¹⁾ (Processing/Trading)	$237/257	$ 197/178	$ 226/252	$232/254	$201/203
Nonferrous Volumes	90	72	80	170	122
Avg. Net Nonferrous Sales Prices ($/LB)⁽¹⁾	$ 0.96	$ 0.74	$ 1.02	$ 0.99	$ 0.69
Operating Income ⁽²⁾	$40	$ 19	$ 25	$ 65	$ 33

⁽¹⁾ Sales prices are shown net of freight

⁽²⁾ Includes operating income from joint ventures

Revenues from the Metals Recycling Business increased 21% over the first quarter of fiscal 2007 and 65% over the second quarter of 2006. Compared to the first quarter of this year, ferrous processing volumes increased by 275 thousand tons (32%) and nonferrous volumes increased by 10 million pounds (13%). The increase in volumes from the first quarter was primarily related to the timing of shipments and higher volumes processed at the Company’s Oakland and Boston area facilities, where the installation of new mega-shredders had a temporarily disruptive effect on operations during the first quarter. Compared to the second quarter of last year, volumes were also significantly higher, primarily reflecting the Company’s efforts to increase throughput at all of its processing facilities.

During the quarter, the markets for ferrous scrap continued to be strong, with average net selling prices realized through the Company’s processing facilities up $11/ton from the first quarter and $40/ton from the second quarter of last year. In addition, the markets for nonferrous metals also remained strong, with average prices up 30% over the same period in the prior year, although declining slightly from the first quarter.

Operating income improved 60% from the first quarter and 111% year over year. The increase from the first quarter was due to higher shipping volumes and higher ferrous selling prices, with the latter being partially offset by higher costs for the purchase of scrap metal for processing. Compared to the second quarter of last year, operating income improved due to higher volumes and selling prices. Operating margins in the processing business were 10%, compared to 8% in the first quarter of this year and 7% in the second quarter of last year.

Auto Parts Business

The Auto Parts Business reported both quarter over quarter and year over year improvements in operating income.

($ in millions, except locations)	Second Quarter 2007	Second Quarter 2006	First Quarter 2007	Year to Date 2007	Year to Date 2006
Revenues	$ 60	$ 50	$ 61	$ 121	$ 96
Operating Income	$ 5	$ 4	$ 4	$ 9	$ 11
Locations (end of quarter)	52	51	52	52	51

Revenues for the Auto Parts Business increased 20% over the second quarter of 2006 and declined 2% from the seasonally strong first quarter of this year. The year over year increase was due to improved performance in the Company’s full-service operation, the contribution of the five stores converted to self-service and increased core and scrapped vehicle revenues due to higher ferrous and nonferrous prices. The decline on a quarter over quarter basis was primarily attributable to the impact of winter weather conditions on the Company’s self-service admissions and parts sales, offset partly by increases in full-service revenues and scrapped vehicle sales and the full quarter impact of the fifth self-service conversion store opened in October of this fiscal year.

Second quarter operating income increased 38% over the second quarter of 2006 and 32% over the first quarter of this year. The increased operating income compared to the second quarter of last year was primarily the result of improved full-service profitability. Higher self-service core and scrapped vehicle sales as a result of higher prices were more than offset by increased costs for purchased vehicles and increases in information technology expenses related to upgrades to key management systems. Compared to the first quarter of this year, operating income increased due improved full-service performance. Higher self-service core and scrapped vehicle sales were offset by lower retail parts and admission revenues in the seasonally weaker second quarter.

Steel Manufacturing Business

The Steel Manufacturing Business completed another solid quarter.

($ in millions, except selling prices; volume in thousands of tons)	Second Quarter 2007	Second Quarter 2006	First Quarter 2007	Year to Date 2007	Year to Date 2006
Revenues	$ 99	$ 90	$ 96	$ 195	$ 179
Avg. Net Sales Prices ($/T)	$ 536	$ 522	$ 546	$ 541	$ 519
Sales Volume	177	165	170	347	331
Operating Income	$ 12	$ 16	$ 15	$ 27	$ 32

Revenues for the Steel Manufacturing Business were slightly higher than the first quarter of 2007 and 10% higher than the second quarter of 2006. Sales volumes, which were 4% higher on a quarter over quarter basis, more than offset a 2% decline in average net sales prices. While the steel industry experienced normal seasonal softness during the winter months, sales volumes accelerated during the latter part of the quarter as customer activity increased in anticipation of future price increases. On a year over year basis, both sales volumes and sales prices increased.

Operating income declined on both a year over year and quarter over quarter basis, primarily due to a narrowing of the spread between the net sales price/ton and the cost/ton of acquiring scrap metal for use in the Company’s electric arc furnace. The Steel Manufacturing Business acquires 100% of its scrap at market prices through the Metals Recycling Business.

Share Repurchase:

During the quarter, the Company repurchased 1.25 million shares of its Class A common stock at an average price of $37.20 per share. Year-to-date, the Company has repurchased 1.5 million shares, or approximately 5% of total shares outstanding, and under the authority granted by the Company’s Board of Directors, 3.2 million shares remain available for repurchase.

The timing and amount of future repurchases will be determined at the discretion of the Company’s management based on a number of factors, including the availability of capital, other capital allocation alternatives and market conditions for the Company’s common stock. The share repurchase program does not require the Company to acquire any specific number of shares, may be suspended, extended or terminated by the Company at any time without prior notice and may be executed through open market purchases or privately negotiated transactions or utilizing Rule 10b5-1 programs.

Outlook

The factors that will affect the Company’s results in the third quarter of fiscal 2007 include:

Metals Recycling Business:

Pricing. The international markets for scrap metal are expected to be robust. Based on sales booked to date and the Company’s current view of the markets, average net selling prices during the third quarter are expected to be at record levels, approximately $40-$50 per ton higher than the prices in the recently completed second quarter. The markets for nonferrous materials are also expected to remain strong with the average price per pound approximating the levels of the second quarter.

Sales volumes. Ferrous scrap volumes in the processing business are expected to decline by 100 thousand to 150 thousand tons from the record volumes achieved during the second quarter, primarily related to lower ending inventories and the timing of shipments. Volumes in the trading business, Schnitzer Global Exchange, should increase slightly. Nonferrous sales volumes are expected to approximate the 90 million pounds shipped during the recently completed quarter.

Margins. Strong demand for both ferrous and nonferrous scrap is expected to continue to put pressure on buying prices for materials. The strength of the domestic steel industry and tight supply conditions for materials are expected to result in a significant increase in purchase prices for scrap metal, particularly on the East Coast. As a result, the anticipated increase in export selling prices is expected to be partially offset by higher buying prices for scrap metal.

Auto Parts Business:

Revenues. Revenues are expected to increase on both a quarter over quarter and year over year basis as a result of higher sales in both the self-service and full-service operations. Compared to the second quarter of this year, the self-service business should benefit from normal seasonal improvements due to more favorable weather conditions, higher core and scrapped vehicle sales due to an increase in purchased car volumes and improved performance in the five self-service conversion stores. Compared to the third quarter of 2006, self-service revenues are expected to improve based on higher core and scrapped vehicle revenues and higher conversion store sales.

Margins. Margins in the third quarter are expected to improve from the second quarter of this year, with seasonal improvements in the self-service business and higher core and scrapped vehicles sales offsetting higher purchased vehicle costs. The full-service business is again expected to be profitable. Compared to the third quarter of 2006, margins are expected to improve slightly due to a widening of the spread between core and scrapped vehicle sales and the cost of purchased vehicles combined with stronger performance in the full-service operation.

Steel Manufacturing Business:

Pricing. Demand for steel products is expected to rise in the third quarter as West Coast construction activity increases. Based on recently announced price increases and current market conditions, the average net prices during the quarter are expected to be approximately 10% higher than the average prices obtained during the recently completed second quarter.

Sales Volumes. The Company scheduled a six-week shutdown of one of its rolling mills beginning in early March for the installation of a new reheat furnace. In anticipation of the shutdown, the Company built inventory during the second quarter to support the expected strong market demand. As a result, sales volumes during the third quarter are expected to approximate the volumes during the recently completed second quarter, while being lower than the 190,000 tons sold during the third quarter of 2006.

Margins. Rising scrap costs, lower volumes and one-time costs associated with the shutdown of the rolling mill during the installation of the new reheat furnace are expected to result in margins which are lower than reported during the third quarter of 2006. Compared to the second quarter of this year, scrap costs are expected to approximate the increase in net selling prices, although the potential exists for margin expansion if scrap price increases were to slow. Any benefit from these lower than anticipated raw material costs would be partially offset by the one-time costs noted above.

Second Quarter 2007 Conference Call

A conference call to discuss results will be held today, April 9, 2007, at 11:30 a.m. EDT, hosted by John Carter, President and Chief Executive Officer, and Greg Witherspoon, Chief Financial Officer. The call will be webcast and is accessible on Schnitzer Steel’s web site at www.schnitzersteel.com.

Schnitzer Steel Industries, Inc. is one of the largest manufacturers and exporters of recycled ferrous metal products in the United States with 32 operating facilities located in 11 states throughout the country, including six export facilities located on both the East and West Coasts and in Hawaii. The Company’s vertically integrated operating platform also includes its auto parts and steel manufacturing businesses. The Company’s auto parts business sells used auto parts through its 35 self-service facilities and 17 full-service facilities located in 14 states and in western Canada. With an annual production capacity of over 750,000 tons, the Company’s steel manufacturing business produces finished steel products, including rebar, wire rod and other specialty products. The Company commenced its 101st year of operations in 2007.

This news release includes four non-GAAP financial measures: net income and net income per diluted share excluding a gain on disposition of joint venture assets and net income and net income per diluted share excluding a gain on disposition of joint venture assets and charge for investigation reserve. Management believes that by excluding the impact of the gain and the charge for the investigation reserve, these measures allow for better comparisons to prior periods and provide a better insight into the Company’s operating performance.

This news release, particularly the Outlook section, contains forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding the Company’s outlook for the business and statements as to expected pricing, sales volume, operating margin and operating income. Such statements can generally be identified because they contain expect, believe, anticipate, estimate and other words that convey a similar meaning. One can also identify these statements as statements that do not relate strictly to historical or current facts. Examples of factors affecting the Company that could cause actual results to differ materially from current expectations are the following: volatile supply and demand conditions affecting prices and volumes in the markets for both the Company’s products and raw materials it purchases; world economic conditions; world political conditions; changes in federal and state income tax laws; impact of pending or new laws and regulations regarding imports and exports into the United States and other foreign countries; foreign currency fluctuations; competition; seasonality, including weather; energy supplies; freight rates; loss of key personnel; the inability to complete expected large scrap export shipments in the current quarter; business integration issues relating to acquisitions of businesses; and business disruptions resulting from installation or replacement of major capital assets, as discussed in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s most recent annual report on Form 10-K or quarterly report on Form 10-Q. One should understand that it is not possible to predict or identify all factors that could cause actual results to differ from the Company’s forward-looking statements. Consequently, the reader should not consider any such list to be a complete statement of all potential risks or uncertainties. The Company does not assume any obligation to update any forward-looking statement.

For more information about Schnitzer Steel Industries, Inc. go to www.schnitzersteel.com.

SCHNITZER STEEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share amounts)


		For the Three Months Ended				For the Six Months Ended
		February 28,		February 28,		February 28,		February 28,
		2007		2006		2007		2006


Revenues		$	604,442	$	403,285	$	1,114,296	$	744,516

Operating expense:
Cost of goods sold			515,618		338,561		950,324		623,667
Selling, general and administrative			42,741		33,540		85,599		73,884⁽²⁾
(Income) from joint ventures			(1,181)		(386)		(2,467)		(2,138)

Operating income			47,264		31,570		80,840		49,103

Other income (expense):
	Interest expense		(2,305)		(401)		(3,367)		(836)
	Other income, net		285		689		1,402		56,223⁽¹⁾
	Other income (expense)		(2,020)		288		(1,965)		55,387


Income before income taxes, minority interests, and pre-acquisition interests
			45,244		31,858		78,875		104,490

Income tax expense			16,265		10,591		28,336		41,726

Income before minority interests and pre-acquisition interests			28,979		21,267		50,539		62,764

Minority interests, net of tax			(533)		(149)		(935)		(302)

Pre-acquisition interests, net of tax									186
Net income		$	28,446	$	21,118	$	49,604	$	62,648


Net income per share - basic		$	0.94	$	0.69	$	1.62	$	2.05

Net income per share - diluted		$	0.93	$	0.68	$	1.60	$	2.03


⁽¹⁾Includes a gain on disposition of joint ventures of $54.6 million pre-tax.

⁽²⁾Includes a charge of $11 million related to investigation reserve.

SCHNITZER STEEL INDUSTRIES, INC.
FINANCIAL HIGHLIGHTS
(Unaudited, in thousands, except per share amounts)

		For the Three Months Ended				For the Six Months Ended
		February 28,		February 28,		February 28,		February 28,
		2007		2006		2007		2006
REVENUES:
Metals Recycling Business:
	Ferrous sales:
	Processing	$	315,930	$	205,579	$	539,022	$	335,116
	Trading		80,414		33,312		171,927		112,001
	Nonferrous sales		87,931		54,301		169,925		85,829
	Other		1,845		1,791		5,731		3,467
	Total		486,120		294,983		886,605		536,413

Auto Parts Business			59,786		49,982		120,594		95,904
Steel Manufacturing Business			98,924		89,535		194,984		178,691
Intercompany revenue eliminations			(40,388)		(31,215)		(87,887)		(66,492)
	Total	$	604,442	$	403,285	$	1,114,296	$	744,516

INCOME (LOSS) FROM OPERATIONS:
Metals Recycling Business:
	Processing	$	38,814	$	19,594	$	62,706	$	33,116
	Trading		942		(727)		1,893		(515)
Auto Parts Business			5,007		3,630		8,802		11,367
Steel Manufacturing Business			11,910		16,246		27,269		32,316
Corporate expense			(11,074)		(8,987)		(20,768)		(28,466)⁽¹⁾
Intercompany profit eliminations			1,665		1,814		938		1,285
	Total	$	47,264	$	31,570	$	80,840	$	49,103

NET INCOME		$	28,446	$	21,118⁽²⁾	$	49,604	$	62,648⁽²⁾
NET INCOME PER SHARE - BASIC		$	0.94	$	0.69	$	1.62	$	2.05
NET INCOME PER SHARE - DILUTED		$	0.93	$	0.68	$	1.60	$	2.03
SHARE INFORMATION (THOUSANDS):
	Basic shares outstanding		30,366		30,528		30,566		30,503
	Diluted shares outstanding		30,607		30,857		30,906		30,854

⁽¹⁾Includes a charge of $11 million related to investigation reserve.

⁽²⁾Includes an after-tax gain on disposition of joint ventures of $33.9 million ($54.6 million pre-tax).

Schnitzer Steel Industries, Inc.
Selected Operating Statistics
(Unaudited)

					Total					Total
			Q1 FY07	Q2 FY07	FY07	Q1 FY06 ⁽²⁾	Q2 FY06	Q3 FY06	Q4 FY06	FY06
Metals Recycling Business
	Ferrous Recycled Metal Sales Prices ($/LT)⁽¹⁾
		Domestic	$ 219	$ 233	$ 226	$ 207	$ 202	$ 215	$ 238	$ 217
		Exports	230	238	235	204	195	206	245	214
		Total Processing	226	237	232	205	197	210	243	215
		Trading	252	257	254	216	178	222	253	226

	Ferrous Processing Sales Volume (LT)
		Cascade	191,090	151,383	342,473	154,146	147,986	174,833	190,971	667,936
		Domestic	155,970	174,752	330,722	58,343	158,177	176,339	130,164	523,023
		Export	521,200	816,683	1,337,883	336,712	605,386	534,966	621,182	2,098,246
		Total Processed	868,260	1,142,818	2,011,078	549,201	911,549	886,138	942,317	3,289,205

	Ferrous Trading Sales Volume (LT)		320,018	276,220	596,238	306,716	154,387	351,173	459,323	1,271,599

	Total Ferrous Sales Volume (LT)		1,188,278	1,419,038	2,607,316	855,917	1,065,936	1,237,311	1,401,640	4,560,804

	Nonferrous Average Price ($/pound)⁽¹⁾		$ 1.017	$ 0.964	$ 0.989	$ 0.616	$ 0.742	$ 0.914	$ 1.083	$ 0.873

	Nonferrous Sales Volume (pounds, in thousands)		79,728	90,140	169,868	50,035	71,800	91,610	87,838	301,283


Steel Manufacturing Business
	Sales Prices ($/NT)⁽¹⁾
		Average	$ 546	$ 536	$ 541	$ 517	$ 522	$ 523	$ 548	$ 528

	Sales Volume (NT)
		Rebar	98,491	111,136	209,627	98,101	89,114	103,623	98,765	389,603
		Coiled Products	51,823	50,134	101,957	48,716	57,061	66,093	61,504	233,374
		Merchant Bar and Other	19,281	16,031	35,312	19,241	18,540	20,783	21,188	79,752
		Total	169,595	177,301	346,896	166,058	164,715	190,499	181,457	702,729

Auto Parts Business
	Number of self-service locations at end of quarter		35	35		30	31	32	34
	Number of full-service sites at end of quarter		17	17		19	20	18	17

⁽¹⁾Price information is shown after a reduction for the cost of freight incurred to deliver the product to the customer.

⁽²⁾The Company elected to consolidate results of two of the businesses formed from the Hugo Neu Corporation separation agreement as though the transaction had occurred at the beginning of the fiscal year.