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| ===Cyclical Nature of the [[Steel industry]]=== | ===Cyclical Nature of the [[Steel industry]]=== | ||
| The [[steel industry]] is traditionally very cyclical in nature and its success is closely tied to other domestic industries such as the [[Auto and Truck Industry|U.S. Auto Industry]] and the Construction Industry. Considering the recent [[Big Three Auto Woes|trouble in the domestic auto market]] and the current [[Subprime lending|subprime lending crisis]], the steel industry may be affected very negatively. | The [[steel industry]] is traditionally very cyclical in nature and its success is closely tied to other domestic industries such as the [[Auto and Truck Industry|U.S. Auto Industry]] and the Construction Industry. Considering the recent [[Big Three Auto Woes|trouble in the domestic auto market]] and the current [[Subprime lending|subprime lending crisis]], the steel industry may be affected very negatively. | ||
| + | |||
| + | == Market Share== | ||
| + | |||
| + | {| border="2" style="text-align:center;background:#F7F7F7;" | ||
| + | |+ '''Global Steel Industry Market Share by Crude Steel Production (Q2, 2009)''' | ||
| + | |- | ||
| + | | align="center" style="background:#87cefa;"|'''Manufacturer''' | ||
| + | | align="center" style="background:#87cefa;"|'''Crude Steel Production (Thousands of Tons)''' | ||
| + | | align="center" style="background:#87cefa;"|'''Market Share<ref name=Q2globalsteelproduction>[http://www.steelonthenet.com/production.html Steel on the Net - World Steel Review, August 2009]</ref>''' | ||
| + | | align="center" style="background:#87cefa;"|'''YOY % Change in Production''' | ||
| + | |- | ||
| + | | [[US Steel]]<ref>[http://www.sec.gov/Archives/edgar/data/1163302/000119312509156797/d10q.htm X, Q2 2009, 10-Q, Item 4, Page 58]</ref> | ||
| + | ||3,023||.96%||-60% | ||
| + | |- | ||
| + | | [[Nucor]]<ref>[http://www.sec.gov/Archives/edgar/data/73309/000119312509108168/d10q.htm NUE, Q2 2009, 10-Q, Item 2, Page 19]</ref> | ||
| + | ||2,808||.89%||-53% | ||
| + | |- | ||
| + | | [[SCHN]]<ref>[http://www.sec.gov/Archives/edgar/data/912603/000119312509141495/d10q.htm SCHN, Q3 2009, 10-Q, Item 2, Page 30]</ref> | ||
| + | ||1,037||.33%||-19% | ||
| + | |- | ||
| + | | [[Steel Dynamics]]<ref>[http://www.steeldynamics.com/investor_info/sec_filings/8-k_7.27.2009_Earnings_Release_Q_2009.pdf AKS, Q2 2009, Quarterly Earnings Release]</ref> | ||
| + | ||886||0.28%||-45% | ||
| + | |- | ||
| + | | [[AK Steel]]<ref>[http://www.sec.gov/Archives/edgar/data/918160/000091816009000029/form10-q.htm AKS, Q2 2009, 10-Q, Item 2, Page 27]</ref> | ||
| + | ||740||0.23%||-57% | ||
| + | |- | ||
| + | | [[CMC]]<ref>[http://ccbn.10kwizard.com/xml/download.php?repo=tenk&ipage=6259925&format=PDF CMC, Q2 2009, 10-Q, Item 2, Page 25]</ref> | ||
| + | ||435||0.14%||-42% | ||
| + | |} | ||
| ==Competition== | ==Competition== | ||
Revision as of 14:41, August 12, 2009
Nucor Corp. (NYSE:NUE) is a steel producer that relies on scrap steel for production rather than iron ore; this makes it the largest recycler in the nation. As opposed to traditional large mills, Nucor runs mostly mini-mills that utilize modern steel making techniques and require fewer employees compared to fully-integrated competitors such as US Steel (X).[1] Still, the company employs nearly 12,000 workers, all of whom are independent of unions.[2]
Production totaled 20.4 million tons in 2008, a 7% decrease from 2007.[3] The average utilization rate for all of Nucor's production facilities was between 72 and 80 percent.[4] Nucor's 2008 revenues of $23.7 billion represent an increase of 43% over the previous year, while profits of $1.8 billion represent a 24% gain over 2007.[5] These strong results were primarily based on record sales during the first three-quarters of 2008, the fourth quarter was considerably weaker as Nucor's customers drastically reduced their orders in light of the global economic downturn.
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.
Contents |
Business Overview
Nucor is a scrap-based steel producer based in Charlotte, NC. The company operates 53 facilities throughout the U.S. and is among the largest domestic steel producers by tonnage
Since 2001, Nucor's sales have increased 240%, growing from $4.33 billion in 2001 to $14.75 billion in 2006.[6] Over the same period, total tonnage sold to external customers has increased by 81% due to acquisitions, optimizing existing holdings and development of projects with new technologies.[7] As can be seen in the graph below, Nucor continues to increase its revenue and operating income.
Sales Breakdown by Segments
Nucor focuses on having a very diversified production portfolio. With this diversity of the company's product line, Nucor's short term performance is not dependent on any single market. Following is a breakdown of the end markets for the company's various product families:
- 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.[9]
The table below shows the net sale breakdown by product from the years 2004-2006.
| Net Sales to External Customers | 2004 | 2005 | 2006 | 2007 | 2008 | ||
|---|---|---|---|---|---|---|---|
| Sheet | $4,856,469 | $4,805,391 | $5,362,178 | $5,051,067 | $6,503,074 | ||
| Bar | $2,632,966 | $3,061,326 | $3,702,609 | $3,885,094 | $4,362,420 | ||
| Structural | $1,500,878 | $1,702,720 | $2,205,303 | $2,564,531 | $3,085,303 | ||
| Plate | $1,119,117 | $1,494,244 | $1,755,033 | $1,810,520 | $2,527,122 | ||
| Downstream Steel Products | $1,267,398 | $1,637,318 | $1,726,147 | $3,051,648 | $4,339,524 | ||
| Total | $11,376,82 | $12,700,999 | $14,751,270 | $16,592,976 | $23,663,324 | ||
This chart displays the product sale breakdown by percentage from 2006.
Key Trends & Forces
After several years of increasing, Steel prices have fallen considerably since the worldwide economic downturn has reduced demand for all kinds of steel.
Globalization of the Steel Industry
Domestic steel producers are facing increasing competition from international producers. China in particular is leading the growth in demand and supply of steel worldwide, but the U.S. may begin to combat this more. If foreign steel continues to infiltrate the domestic market, this could lead to a decrease in market share for the nation's leading steel makers, although a weaker dollar helps to combat this trend.
Prices of Raw Materials
The steel industry is particularly influenced by the prices of input raw materials. Integrated steel makers use primarily iron ore in the production process, whereas mini-mills use primarily steel scrap. Producing from steel scrap is a simpler and significantly less energy-intensive process than producing from iron ore, but because steel scrap is recycled, there is concern of impurities thus decreasing the accessible market for producers. The primary source for steel scrap is obsolete automobiles, but steel scrap also comes from the recycling of steel cans, appliances, and other construction materials,
Nucor utilizes metal scrap for most of its operations, a material that has increased in price substantially in recent years. After dramatic rises is the costs of ferrous scrap in 2003 and 2004 (25% and 74% respectively), Nucor implemented a raw materials sales price surcharge in 2004 which has helped to offset the impact of historically high scrap prices continuing into 2006.[13] Furthermore, many of the companies contracts permit price adjustments to reflect prevailing raw material costs, allowing Nucor to protect itself somewhat from volatile price changes.[14]
Environmental Concerns
The steel production industry is extremely energy intensive and is a heavy producer of greenhouse gases (GHG's). Facing increasing concern about global warming and simultaneous rising demands for energy worldwide, there could soon be significant legislation that would affect the steel industry. If drastic changes and modifications are required to be made to facilities, this could greatly affect the profitability of the sector.
Cyclical Nature of the Steel industry
The steel industry is traditionally very cyclical in nature and its success is closely tied to other domestic industries such as the U.S. Auto Industry and the Construction Industry. Considering the recent trouble in the domestic auto market and the current subprime lending crisis, the steel industry may be affected very negatively.
Market Share
| Manufacturer | Crude Steel Production (Thousands of Tons) | Market Share[15] | YOY % Change in Production |
| US Steel[16] | 3,023 | .96% | -60% |
| Nucor[17] | 2,808 | .89% | -53% |
| SCHN[18] | 1,037 | .33% | -19% |
| Steel Dynamics[19] | 886 | 0.28% | -45% |
| AK Steel[20] | 740 | 0.23% | -57% |
| CMC[21] | 435 | 0.14% | -42% |
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.[22] 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.[23] In addition, Nucor has recently focused heavily on acquisitions to increase production capacity and to make the company more competitive in the global market.[24]
| Total Global Steel Production | Total Sales | Cost of Sales | Operating Income | % Gross Margins | |||
|---|---|---|---|---|---|---|---|
| (mmt) | (bil) | (bil) | (bil) | ||||
| Nucor | 22.12 | $14.75 | $12.05 | $2.7 | 18% | ||
| US Steel (X) | 21.63 | $15.72 | $13.93 | $1.79 | 11% | ||
| Arcelor Mittal (MT) | 110.5 | $58.87 | $51.37 | $7.50 | 13% | ||
Source: 2006 Company Reports
<autowikidata/>
References
- ↑ Nucor 2006 Annual Report pg 14
- ↑ Nucor 2006 Annual Report pg 14
- ↑ Nucor 2008 Annual Report, page 47
- ↑ Nucor 2008 Annual Report, page 15-16
- ↑ Nucor 2008 Annual Report, page 48
- ↑ Nucor 2006 Annual Report pg 21
- ↑ Nucor 2006 Annual Report pg 21
- ↑ Nucor 2006 Annual Report pg 36
- ↑ Nucor 2006 Annual Report pg 11-12
- ↑ Nucor 2008 Annual Report, page 86
- ↑ Nucor 2006 Annual Report pg 21
- ↑ MEPS: Global Steel Prices
- ↑ Nucor 2006 10k pg 2
- ↑ Nucor 2006 10k pg 1
- ↑ Steel on the Net - World Steel Review, August 2009
- ↑ X, Q2 2009, 10-Q, Item 4, Page 58
- ↑ NUE, Q2 2009, 10-Q, Item 2, Page 19
- ↑ SCHN, Q3 2009, 10-Q, Item 2, Page 30
- ↑ AKS, Q2 2009, Quarterly Earnings Release
- ↑ AKS, Q2 2009, 10-Q, Item 2, Page 27
- ↑ CMC, Q2 2009, 10-Q, Item 2, Page 25
- ↑ Nucor 2006 10k pg 1
- ↑ Nucor 2006 Annual Report pg 13
- ↑ Nucor 2006 10k pg 3
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