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Nucor (NUE)Stock (Manufacturing Industry, Steel & Iron Industry)
 Production totaled 22.4 million tons in 2006, a 10% increase from 2005, with production capacity exceeding 25 million.[3]. Nucor achieved record sales and net earnings in 2006 for the third consecutive year, and has managed to maintain profitability every quarter of every year since 1966.[4] 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.
[edit] Business OverviewNucor 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.[5] 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.[6] As can be seen in the graph below, Nucor continues to increase its revenue and operating income. [edit] Sales Breakdown by SegmentsNucor 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:
Source:Nucor 2006 Annual Report[9]
[edit] Key Trends & ForcesSteel prices have risen from 2006 to early 2007 due primarily to an increasing demand around the world for this high-strength material.  [edit] 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. [edit] Prices of Raw MaterialsThe 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.[11] 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.[12] [edit] Environmental ConcernsThe 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. [edit] Cyclical Nature of the Steel industryThe 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. [edit] CompetitionNucor 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.[13] 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.[14] In addition, Nucor has recently focused heavily on acquisitions to increase production capacity and to make the company more competitive in the global market.[15]
Source: 2006 Company Reports
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