Nucor, Steel Dynamics Profit From Fewer Imports

21 October 2016

Fewer steel imports from China helped increase steel prices in the third quarter, lifting sales at leading steel makers Nucor (NUE) and Steel Dynamics (STLD).

Still, uneven demand in their U.S. markets as the economy plods ahead led to a mixed reaction on Wall Street, where shares opened lower in a volatile trading session.

The steel group was among the market's leading industry groups in late spring and early summer, but is now building a base after a run-up fueled by an Obama administration crackdown on Chinese imports. In May, the Commerce Department boosted tariffs on Chinese cold-rolled steel to 522%.

Nucor shares were off 0.4% to 47.84 on the stock market today and are near the bottom of a deep consolidation zone. Steel Dynamics shares held onto gains after an initial sell-off, rising 3.6% to 26.16, within 7% of the stock's 8-year-high set on July 18.

Meanwhile, other smaller industry players Reliance Steel & Aluminum (RS) and Valmont Industries (VMI) saw their stocks sink after the steel fabricators missed earnings estimates amid weakness in some of their key markets.

U.S. Steel (X), which is due to report earnings on Nov. 2, and AK Steel (AKS), which reports on Oct. 25, both saw their shares rise by more than 6%, but still remain in the lower part of their consolidation zones.


Profit came in at 84 cents a share, up from 71 cents a year ago but below estimates of 95 cents due to lower profit margins at its steel mills.

Sales rose 2% from a year ago to $4.29 billion, though below analyst estimates of $4.51 billion. Although average selling prices rose 11% from the second quarter and 2% from a year ago, shipments to outside customers were down 9% from the second quarter and flat from a year ago at 5.889 million tons.

"The flat-rolled trade cases are having a positive impact as steel imports are down approximately 20% this year compared to last year," Nucor said. Still, it noted that "market conditions for our plate and bar mills continue to be challenging due to high levels of imports."

Nucor's end markets are a mixed bag, with automotive remaining strong, but energy, heavy equipment and agricultural markets still weak. A quick lift isn't expected: The company said that profitability will "decrease notably" in the fourth quarter, partly due to regular seasonality.
Steel Dynamics

Profit more than doubled to 65 cents a share from 25 cents a year ago, meeting estimates. Revenue rose 7.7% to $2.1 billion, inching past expectations.

Results were helped by a 20% year-over-year decline in imports of flat roll steel and low customer inventory levels, the company said. But it noted that, "late in the third quarter, customers were hesitant to make purchases ahead of an anticipated scrap price decrease and as a result September steel shipments were lower than anticipated."

Management was relatively upbeat about the outlook, saying that even though the U.S. automotive market may come off its peak in 2017, overall automotive steel consumption will be steady thanks to Mexico growing production. The company also anticipates more growth in the construction section, especially for larger, public sector infrastructure projects, and a possible pickup in the energy sector.


Reliance Steel missed estimates for third-quarter earnings by a little but offered fourth-quarter guidance that was way below the consensus.

Third-quarter profit of $1.25 rose 7.8% from a year ago but missed estimates by 6 cents. Reliance offered fourth-quarter guidance of 65-75 cents a share vs. the consensus of $1.02.

Sales fell 4.4% from a year ago to $2.19 billion. Average selling prices, though up 4.4% from the second quarter, were still below year-ago levels.

Citing "increased uncertainty" in the market, along with normal seasonality, the company said shipments would fall 5% to 7% from the third quarter, while pricing would fall 1% to 3%.


Valmont earning $1.48 per share, up from $1.39 a year ago but below estimates of $1.50. Sales fell 3.5% from a year ago to $610.2 million, below estimates of $628 million.

The company said the weakness was focused in international utility markets and weaker coatings demand in North America.


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