Steel Mills

Nucor Earnings Solid in Third Quarter 2015

Written by Sandy Williams

Nucor third quarter earnings exceeded analyst expectations with earnings per share of $0.71 compared to estimates of $0.49. Nucor posted net income of $227.1 million, up from $124.8 million in second quarter due to a larger than forecasted LIFO credit and improved performance in the steel segment.

Consolidated net sales were $4.23 billion on shipments of 5.88 million tons—both down 3 percent from second quarter. Average sales price per ton was in line with second quarter.

Steel shipments were down 3 percent from second quarter and 10 percent year over year. Steel margins benefited from a lower average cost of inventory in third quarter. Steel mills were operating at 69 percent in third quarter compared to 73 percent in Q2 and 81 percent in Q3 2014. Downstream steel product shipments increased 9 percent sequentially.

Scrap and scrap substitute cost per ton decreased 3 percent from the previous quarter to $262. Declining scrap prices contributed to decreased performance in the scrap processing business.

Nucor Steel Louisiana posted an operating loss of $28 million in third quarter which included a $7.7 million write off of two storage domes at the facility. In comparison, second quarter loss was $20 million.

In comments regarding the Louisiana plant, CEO John Ferriola said “Louisiana was cash positive for the last two months and that is a significant improvement. Now they will continue to be challenged, given the current pricing of raw materials in general….As I said earlier, we don’t expect it to be a grand slam in this pricing environment, but long-term, we have a great deal of confidence that it was a good investment and will pay large dividends in the long run.”

Nucor expects to see a decline in fourth quarter results due to deterioration in the global steel markets. High levels of steel imports continue to negatively impact the U.S. steel industry, capturing one third of the market. Performance in the raw materials segment is expected to decrease slightly due to lower scrap and metallic commodity prices.

Nucor foresees continued strength in the automotive market and improvement in nonresidential construction.

Ferriola said demand is still good relative to last year. “Our demand across all of our products is about consistent, maybe down 2 or 3 percent.”

Ferriola said the biggest factor driving weakness in the steel industry is illegally traded imports.

“In the first eight months of this year, China’s global steel exports surged 27 percent to 72 million tons; they’re on track to exceed 100 million tons, which is greater than the total U.S. steel production last year,” said Ferriola in Nucor’s earnings call. “Steel products from China are flooding into markets around the world creating a domino effect as countries look for markets for their steel products. A massive increase in China’s steel exports is provoking a wave of trade actions across the globe including Europe, South Africa, Mexico and India, as steel producers fight against the illegally subsidized steel imports being dumped into their markets.”

Ferriola added that as other countries successfully protect their markets, more steel products are dumped into the U.S. market. The recent trade cases on hot rolled, cold rolled and corrosion resistant steels are making progress in the Commerce department. Ferriola was asked if current trade information could still be applied to those ongoing cases and in the rebar trade case.

“Let me be clear…. Speaking in the case of rebar where there was a determination, we will be able to use that pricing data as we go back into the appeal. In the cases of cold-rolled and hot-rolled and corrosion resistance, we will be able to use that pricing data in these current cases. We will not have to wait for a determination and then use them in the field. They can be entered in to the case as we press it forward.”

Nucor is seeing less dependency on foreign orders as the trade cases develop and domestic prices become more competitive.

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