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Benzinga  2 hrs ago  Comment 
Cliffs Natural Resources Inc (NYSE: CLF) may be getting close to obtaining partners for a troubled Bloom Lake iron mine in Quebec. Chief Executive Lourenco C. Goncalves told investors earlier this week the company is in "active discussions"...
Wall Street Journal  4 hrs ago  Comment 
Nucor Corp. is in talks to invest in Cliffs Natural Resources Inc.’s Bloom Lake iron ore mine in Canada.
SeekingAlpha  Oct 28  Comment 
Market Intelligence Center  Oct 27  Comment 
The patented option-trade picking algorithms that power MarketIntelligenceCenter.com's Artifical Intelligence Center found a trading opportunity with Nucor Corp (NUE) that should provide a 3.22% return in just 54 days. Sell one Dec. '14 call at...
Wall Street Journal  Oct 24  Comment 
Nucor Corp. posted a 66% increase in profits because of rising demand for steel used in the energy and nonresidential construction sectors.
Motley Fool  Oct 23  Comment 
Nucor's operational excellence continues to pay off, with its third-quarter earnings coming in above estimates.
Wall Street Journal  Oct 23  Comment 
Nucor Corp. posted a 66% increase in profits because of rising demand for steel used in the energy and nonresidential construction sectors.
newratings.com  Oct 23  Comment 
WASHINGTON (dpa-AFX) - Nucor Corp. (NUE) reported third-quarter of 2014 net earnings attributable to stockholders of $245.4 million, or $0.76 per share, up from $147.6 million, or $0.46 per share, in the third quarter of 2013. Analysts polled by...
Forbes  Oct 22  Comment 
Analysts expect higher profit for Nucor when the company reports its third quarter results on Thursday, October 23, 2014. The consensus estimate is calling for profit of 75 cents a share, reflecting a rise from 49 cents per share a year ago.Over...




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Nucor is the world's 4th largest steel producer by market capitalization. The rankings are: 1) POSCO (PKX) 2) ArcelorMittal (MT) 3) Gerdau S.A. (GGB) 4. Nucor (NUE) 5. US Steel (X). Over the last 5 years, Nucor (NUE) stock has returned 123.21%, outperforming both US Steel (X) and ArcelorMittal (MT) but underperforming POSCO (PKX) and Gerdau S.A. (GGB). [1]

Due to the extreme consolidation of the steel industry, and monopolistic industry conditions, major steel producers did not cut their prices much in response to lower demand in recent years. Nucor's decline in net sales was primarily attributable to selling less steel, and not lowering prices. Major steel producers do not like cutting prices, because increasing prices back up to previous levels tends to create a demand drag during a recovery. Also, the long-term nature of big-steel contracts encourages steel companies to inhibit steel price volatility.

Scrap steel prices are influenced heavily by international demand, especially by a currently flourishing China; record international demand has driven scrap steel prices to historic highs, along with overall steel prices. The steel industry has experienced unprecedented success during the past five years due to this increased demand, but also faces turbulence in the domestic economy, including trouble with the domestic automobile makers and problems in the housing construction industry, both of which are key steel customers.

Company Overview

History

The history of Nucor[2] as a steelmaker starts with the apppointment of Ken Iverson in 1965 as President. Nucor - then known as the Nuclear Corporation of America - had filed for bankruptcy. Iverson was given the task of turning the company round. By 1969 - despite much opposition for entrenched US steelmakers - he managed to start up the first minimill in Darlington, South Carolina. A change of company name to Nucor followed in 1972. With a staunch anti-union policy, but with new steel plant investment (including the world's first flat product mini-mill installed at Crawfordsville in 1987) as well as acquisitions and some joint venture projects - the company grew to sell ~2.8 million tons of steel by the end of the 1980s, ~9.6 millions tons by the end of the 1990s and ~22 million tons in 2010. Today, Nucor ranks as the world's 14th largest steelmaker in terms of crude steel output [3].

Business Financials

Q1 FY 2011 Quarterly Earnings Summary

Nucor posted net earnings of $159.8 million for the first quarter of 2011 as compared to earnings of $31.0 million for the first quarter of 2010.[4] This reflects a 416% increase between these two quarterly remarks.[4] Nucor's net sales increased to $4.38 billion for this quarter, a 32% increase from sales of $3.65 billion in year ago comparisons.[4] These favorable figures were driven by a 22% increase in the sales price per ton of steel along with a 9% increase in the amount of steel shipped from Nucor.[4] Similarly, the average price of scrap and scrap substitute increased 33% to $424 per ton in the first quarter, an increase from $318 per ton in the first quarter of 2010.[4]

FY 2010 Annual Earnings Summary

Nucor posted a net loss of $11.4 million for Q4 FY2010 as compared to net earnings of $23.5 million for the previous quarter.[5] Net earnings were $58.9 million in year ago results.[5] However, Nucor posted net earnings of $134.1 million for FY 2010 as compared to net losses of $293.6 million for the previous year.[5] Losses were primarily driven by the costs of opening new facilities as well as decreased inventory values.[5]

Fourth quarter sales decreased 7% when compared to last quarter's sales, totaling $3.85 billion. When compared to last years sales, however, Nucor's fourth quarter sales indicate a 31% increase. Sales prices decreased by 2% when compared to last quarter but increased by 14% when looking at year-ago comparisons.[5] Net sales increased by 42% for the full year, totaling $15.84 billion.[5]

Business Segments

Nucor breaks its net sales into 4 main segments: Steel Mills, Steel Products, Raw Materials, and All Other.

  • Steel Mills: Carbon and alloy steel in sheet, bars, structural, and plate, and Nucor's equity investment in Duferdofin-Nucor.
  • Steel Products: Steel joists and joist girders, steel deck, fabricated concrete reinforcing steel, cold finished steel, steel fasteners, metal building systems, light gauge steel framing, steel grating and expanded metal, and wire and wire mesh.
  • Raw Materials: The David J. Joseph Company, the scrap broker and processor that Nucor acquired on February 29, 2008. Nu-Iron Unlimited, a facility that produces direct reduced iron used by the steel mills and other equity investments.
  • All Other: Novosteel S.A., a steel trading business.

Nucor makes the lion's share of its profits in the Steel Mills and Products Segments. Some details about the specific types of steel they produced follow:

  • Steel Sheet is produced primarily for the automotive, appliance, pipe and tube, and construction industries.
  • Steel Bar is produced primarily for automotive and construction industries, farm machinery, metal buildings, furniture and recreational equipment.
  • Structural Steel is produced primarily for fabricators, construction companies, manufacturers and steel service centers.
  • Steel Plate is produced primarily for manufacturers of heavy equipment, rail cars, ships, barges, refinery tanks, pipe and tube, pressure vessels, and construction.
  • Downstream Steel Products are essentially steel that is further processed and are produced primarily for the construction and manufacturing industries.[6]

Trends & Forces

Rising Steel Prices Will Positively Affect Nucor's Financial Performance

Steel prices are considered a leading economic indicator, because houses, cars and infrastructure needs to be built up with steel before an economic boom. Industrial companies need to purchase steel at least 3 months before an economic recovery to meet potentially explosive demand.

As of late, 15 month steel futures trading on the London Metal Exchange show that steel orders are picking up and driving up prices, at least in the short term. An uptrend in steel prices will benefit steel producers like Nucor.

Yet, despite present optimism in contract prices, a longer-term steel price graph maintains its severe down-trend. Furthermore, 2009 demand increases are being driven by European and Asian markets which does not benefit Nucor as much due to its position in the United States.

Massive World Steel Over-Capacity Could Depress Steel Prices

Mature markets will use less steel as technology improves (less replacements and repairs), and emerging markets will use far less steel as they become mature. Yet, steel plants will remain that can easily produce steel, causing an over-supply problem in the long-run.

Obsolescence and repair, not massive new projects, define steel demand in the industrialized world. For example, Nucor's business model would not function if American cars did not fall apart every few years, because Nucor melts down old cars and sells the steel to car companies to make new ones. If cars break down less often, Nucor pays more for scrap, and car companies make less money selling new cars and pay less for Nucor's steel. Nucor's business model will become less and less sustainable as technology advances causing cars, machinery, and infrastructure to improve in quality and break down less often.

In the meanwhile, China will eventually finish its massive industrialization project. Only India would remain as a massive potential growth market for the steel industry, but even then, China has the capacity to produce 5-8 times the amount of steel as the United States and is far geographically closer to India.

Nucor may enjoy a halo effect from global industrialization, but will simply not benefit as much as Chinese integrated steel giants. As capital goods break down less often in the industrialized world, Nucor will hurt. [7]

Indian Industrialization will benefit steel producers

Despite having a population on par with China's, India only produces about 1/10th of the steel. Currently producing about 55.2 million tonnes anually, India would need to produce about 300 million more tonnes annually to achieve the normal per-capita steel consumption of most industrialized countries. Despite its relatively low production, the Indian steel market has grown rapidly over the last 20 years.[8]

This prediction necessarily assumes that China will continue on its same intensive industrialization through 2012. China has slowed its infrastructure projects in 2009, and it remains to be seen whether or not it will resume aggressive industrial expansion. If China does not industrialize further, it would generally be cheaper for India to import Chinese steel.[9]

Despite somewhat poor positioning to benefit from India's industrialization, Nucor will benefit from increased steel demand because it will be able to sell some of its product to Indian markets. However, it will not benefit nearly as much as integrated Chinese steel companies unless it manages to build substantial operations in India.

Competition

Nucor distinguishes itself from the rest of the steel industry with its use of scrap steel, a fact that makes Nucor the largest recycler in the nation.[10] Furthermore, the company uses modern steel making techniques allowing Nucor to employ fewer workers. The workers that Nucor does employ are all independent of unions; these workers have a vested interested in the productivity of the company because a significant portion of their compensation is based on their own productivity.[11] In addition, Nucor has recently focused heavily on acquisitions to increase production capacity and to make the company more competitive in the global market.[12] Nucor's main competitors are US Steel (X) and Arcelor Mittal (MT).

References

  1. Finance Data
  2. History of Nucor
  3. World Steel Association, 'World Steel in Figures, 2010'
  4. 4.0 4.1 4.2 4.3 4.4 | Nucor Announces First Quarter Earnings
  5. 5.0 5.1 5.2 5.3 5.4 5.5 | Nucor Reports Fourth Quarter Earnings
  6. Nucor 2006 Annual Report pg 11-12
  7. Steel Market Trends, OECD Report
  8. Steel Market Trends, OECD Report
  9. Steel Market Trends, OECD Report
  10. Nucor 2006 10k pg 1
  11. Nucor 2006 Annual Report pg 13
  12. Nucor 2006 10k pg 3
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