Nucor Profit Soars On Lower Costs, Improving Steel Prices
22 July 2016
Nucor Corp. reported a steep increase in quarterly profit Thursday and forecast a robust third quarter, as the steelmaker cashed in on a widening gap between weak commodity markets overseas and domestic prices propped up by new U.S. import tariffs.
Nucor, now the country’s biggest steelmaker by output, said net profits rose 87% to $233.8 million, or 73 cents a share, up from $124.8 million, or 39 cents a share, a year earlier.
Steelmakers in the U.S., on the defensive this year after being hit with high import levels that crushed prices last year, have successfully lobbied the government for new tariffs on steel imports. That has helped reduce steel imports into the U.S. by 19.8% this year to 14.2 million tons, according to Global Trade Information Services.
The benchmark hot-rolled coil index is at $629 per ton in the U.S., up 36% from 12 months ago.
In a recent interview, John Ferriola, Nucor’s chief executive, said prices were “back to where they should be when steel is fairly traded.”
However, because orders are typically placed months ahead of time, those prices are only now starting to benefit companies.
Nucor’s bigger advantage in the second quarter is that it’s also benefiting from a commodities downturn that’s making its raw materials less expensive. The benchmark price for scrap steel, which Nucor melts down in electric arc furnaces, has fallen 9.5% to $238 per ton in the U.S. over the last 12 months.
“The price of flat-rolled steel is now $200 above foreign prices, that’s unusual,” says Charles Bradford, an analyst for Bradford Research Inc. “And at the same time costs for raw materials are coming down” because of the commodity downturn “and that’s benefiting Nucor.”
And scrap prices are expected to stay deflated for some time. A big reason is political and economic turmoil in Turkey, the world’s top importer of steel scrap because of its cluster of electric arc furnaces. Turkey scrap steel imports last year fell 15% to 16.3 million tons, and are expected to decline further after the failed coup attempt this month.
Nucor is the second American steelmaker this week to report a strong quarter. Steel Dynamics Inc. Monday said its net profit more than doubled to $142 million from $53 million a year ago. CEO Mark Millett credited declining imports and inventory levels “balanced with current demand requirements.”
The steel company to watch, says Mr. Bradford, is U.S. Steel Corp. , which lost $1.5 billion last year and will report its second-quarter results next week.
Source : wsj.com