Nucor's Earnings Announcement Provides Several Steel Market Indicators

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I always get a chuckle when I read the mainstream press accounts on any company’s earnings announcements. Take a look at a few that came out no sooner than five minutes after Nucor’s announcement yesterday, “Nucor 4th Quarter Profit Drops 44%, Less Than Feared, Revenue Drops Off 29% or this one, “Steelmaker Nucor 4Q Profit Falls 44%. My boss from Arthur Andersen once had a very prolific phrase when somebody stated the obvious, “yawn. We couldn’t agree more. All the steelmakers and most metal producers came in with numbers showing declining profits, revenues etc. So instead, we think buying organizations ought to use these earnings announcements as opportunities to gain clues about the steel markets in general. We took away a few sound bites and thought we’d share them with you here:

  • Long products took the hardest hit and sheet mill sales carried the profits for Nucor in Q4
  • Margins declined from $459/ton average in 2008 to $290/ton for Q4 but raw material prices have started to increase
  • We heard demand will remain a long hard slog (our words, not theirs) but demand has increased in pockets. For example: power transmission, bridges, wind energy, and automotive
  • Certain industries remain flat such as commercial and residential construction; real demand (which refers to actual demand not counting stocking/re-stocking) will continue to struggle; growth will remain “arduous
  • Service center inventories have a 2.3 month supply (considered lean); Nucor sees more expedited orders, a strong order book for galvanized and galvanneal products
  • Nucor wants to grow its export sales from 11% of total sales to 15%. (AK Steel generates 19% of its total sales from exports) Exports have become a strategic growth initiative for at least a couple of domestic producers
  • Despite average capacity levels in the 60% range, Nucor has still invested in new plants including one for bar products, iron making, a galvanized line and several others
  • Nucor plant utilization rates will range from 60-65% in Q1. Will margins increase? Nucor didn’t completely answer that question but they did indicate that shipments are up, selling prices have increased and scrap prices have increased; margins will likely get healthier too

MetalMiner will release its 2010 steel price predictions within the next week to ten days. Click on the link below to receive notification when the report will be made available.

–Lisa Reisman

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