Steel Mills

Nucor Discusses: Trade Cases, Suspension Agreement, Contract Negotiations, Berkeley Expansion

Written by John Packard

On Thursday of this past week Nucor announced their earnings and conducted their quarterly earnings conference call with analysts. SMU has highlighted a number of subjects touched on during the conference call. The following information (minus the headers) was taken directly from The Street transcript of the call:

Potential for Light Flat Rolled Trade Cases

In the recent Steel Dynamics (SDI) conference call, SDI management advised that they would not be participating in any dumping suits on cold rolled or coated steels at this point in time. The same questions were asked of Nucor CEO, John Ferriola:

Evan Kurtz (Analyst – Morgan Stanley): First question’s on the trade case. Specifically the potential trade case to say on cold rolled products and some coated sheet products that we keep hearing about. the latest I’ve heard is that there may be some disagreement amongst some of the mills that are involved in the case about the breadth of the case and that may be delaying it. And I was hoping you guys could give us an update and let us know if what could debottleneck that process.

John Ferriola (Chairman, CEO, President): I can’t speak to others as possible opinions on this issue but I can share with you Nucor’s opinion.

Evan Kurtz (Analyst – Morgan Stanley): That would be great.

John Ferriola (Chairman, CEO, President): When we look at the increase in coal this year they’ve increased by about 100%. Gallatin has increased almost 50%. Year-over-year.

As I mentioned to you on the last conference call, I have been spending a lot of time in Washington and I’ve gained more confidence in our elected leaders’ ability to connect the dots between illegally traded products and the slow recovery in the economy.

That said, specific to your question, we are working with our trained attorneys in Washington to collect the data that were going to need to file the case at the appropriate time. We are confident in our ability to present a good case and we will present that case aggressively. And we will aggressively pursue critical circumstances with the associated retroactive penalties.

Russian Suspension Agreement

Aldo J. Mazzaferro (Analyst – Macquarie Research): Okay. And John, on this Russian deal, I can see how quarterly plate get pretty heavily and that’s good news for the market. Looking at the 75% over there of their imports that are in the form of slab — and I know that integrated mills buy a lot of those — I know Nucor probably doesn’t by those because you have [inaudible] and you probably can’t load — some just wondering do think those are dumped and possibly subject to trade cases in the future?

John Ferriola (Chairman, CEO, President): As you mentioned, and you’re correct, we don’t buy slabs. So we’re not intimately involved with trade cases that are going on slides, so I really don’t want comment too much on that. I will make a general comment though, about the termination of the suspension agreement. We see that as a positive. Certainly — it’s more than just taking the tons out of the market. I know there’s a lot of times that have been coming out of the market at that low price. I think you to date this somewhere around 700,000 tons [inaudible] coming in. And but the more important factor frankly is by the termination of the suspension agreement, it raises the floor of the sheet pricing in the market. Certainly the Russians were certainly something before. It was a very low floor. By taking their ability to do that out of market, that’s going to be a plus for us and for our competitors.

Belief Foreign Prices Will Increase and Spread Will Diminish

Jorge Beristain (Analyst – Deutsche Bank): Just following up on one of your earlier comments made about the spread of US pricing domestic versus imports. And that that conversions could be met through a slight decline in US prices but maybe an increase in foreign prices. I was wondering if you could flesh out your thinking as to why you think foreign prices may be coming up.

John Ferriola (Chairman, CEO, President): Well, I think it’s a case of necessity. At some point, even with companies competing companies that are getting subsidies. You’ve got to make some a return. In some of the pricing that we’re seeing from some of these companies today, are just not sustainable. We believe that they are not sustainable even with the government support. And frankly, if they depend more and more upon government support, government subsidies, that enhances our ability to take action on the trade front because obviously that’s a violation of trade laws. So I think it’s a combination of their cost us, they’ve got to show some a profit and today that pricing is unsustainable. So they’re going to have to make some adjustments there increasing costs such as we do. And frankly, they’ve got to be careful on the trade side.

Jorge Beristain (Analyst – Deutsche Bank): Great. Another question is just if you could talk about the context obviously looking forward to a recovering non-res and ultimately residential construction market in the US, we haven’t really seen steel sector Full Throttle since 2006-2007.

I do think there’s enough growth in the market that imports will be held at bay in percentage terms taken your historic highs again and that there’s structurally reasons in the US market like imports will just lever off whether it’s trade case related or just the ability of the end consumers to rely too heavily on imports just capped by the natural way the business is done in the US. Maybe just talk about will imports level off do you think and is the growth sufficient enough in the domestic US market for all participants?

John Ferriola (Chairman, CEO, President): First comment, I do believe that the nonresidential construction will continue to improve and that will provide a better market. To your second comment, certainly are some issues that make it tougher for imports these days than we have in the past.

One great example would be transportation. In the United States. It’s one thing to get the product onto the ports of the US. It’s another to get it delivered to the final customer. Trucking is an issue. Frankly, we’re seeing some evidence of delayed deliveries at the ports due to congestion. We’ve got the winter months coming up. Weather becomes a function or it becomes an issue.

So when you look at the final customer bringing in an import, he’s got to look at several risks. Obviously he takes on risks in doing that. Delayed deliveries, production delays or absorption. Clearly when you start talking about a higher valued market products if there’s a quality problem, the problem resolution becomes much more difficult.

And frankly, we’re seeing there was always a risk of unexpected increased costs in freight and other issues. And we serve a large portion of the market particularly in our structural business, the fabricated markets which really they cannot rely on. It’s just simply not practical for them.

So as we see nonresidential construction continue to improve, clearly the business the fabricators {will do] will continually improve and our ability to serve them as a domestic supplier will continue we improve.

Nucor Pricing Negotiations: No Index Minus Pricing

John Ferriola was asked about Gallatin and changes that they may want to make going forward. SMU found part of his response interesting as it goes to the heart of their contract negotiations strategy which was originally formulated at this point in time last year, “…We will follow-up practice of not having CIQ [sic CRU] or any indexed minus pricing in the marketplace. And we will continue to provide our great value to our customers at a fair price. We’re anxious to have them join our team. As I mentioned during my comments, it does give us a better presence in the Midwest. It supports our mill in Crawfordsville…” (SMU Note: There were comments made prior to and after the selected text about Gallatin not having to do with pricing.)

John Ferriola spoke about the successful start-up of the hot strip mill expansion at the next plant on our Steel 101 workshop tour: Nucor Berkeley in South Carolina, “Our Nucor Steel Berkeley sheet mill successful startup this year of it’s wide light capital project continues to build momentum. During the third quarter, our Berkeley team produced new wider products with several customers in the appliance and lawn and garden markets. This $95 million investment provides Berkeley the capability to roll gauges as thin as .042 inches, which is the lightest hot rolled gauge capability of any sheet metal in the southern US market.

“Berkeley’s capabilities also provide a finished width of up to 72 inches. We estimate the size of the new market segment now available to Berkeley to be approximately 4 million tons annually.”

SMU Note: Our next Steel 101 workshop will be held on January 20 & 21st at the Charleston Harbor Resort & Marina in Mount Pleasant, South Carolina. The workshop will include a tour of the Nucor Berkeley steel mill. For more information go to our website: or contact our office: or 800-432-3475.

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