Nucor Has Strong Fourth Quarter

Net sales for 2013 were down 2 percent to $19 billion with tons sold increasing 3 percent to 23.7 million tons.

Steel production totaled 19.9 million tons, nearly unchanged from the previous year. Nucor’s steel mill utilization rate was 74 percent in 2013. The utilization rate for Q4 was 75 percent down from 78 percent in third quarter, but up from 71 percent in the same period a year ago.

Scrap and scrap substitute average cost per ton decreased 8 percent to $376/ton in 2013; the fourth quarter average price was $377.

Upgrades to the sheet steel mill in South Carolina were completed in fourth quarter 2013. Price increases and competitor supply disruptions bolstered sheet steel sales in the second half along with slightly improved demand. Bar and structural steel performance was down due to planned maintenance outages in Norfolk, Nebr., and Blytheville, Ark. Nucor’s Louisiana DRI plant went into operation in late December after suffering a storage dome collapse in September.

In the outlook for first quarter, Nucor anticipates results will be similar to fourth quarter. Results benefitting from no planned outages and decreased start-up costs in Louisiana will be offset by seasonal slowdown in fabricated construction products. Capital expenditures are expected to be less in 2014 but capital is available if good opportunities arise.

The Louisiana DRI mill is ramping up well, running at 80 percent capacity and for short periods has been able to run at 90-95 percent capacity. CEO John Ferriola expects bumps along the road but is confident any problems will be overcome and the plant will exceed expectations. One of the advantages he sees with DRI is flexibility as well as a shorter supply chain, allowing switching of iron units as pricing changes for various commodities. When asked when a second DRI plant will be started, Ferriola said it is too soon and that Nucor needs to finish ramping up the first facility and continue evaluating the technology.

The agreement with Encana has hedged the natural gas supply for the DRI facility through 2015 even with the current suspension of drilling. The agreement also gives the Nucor an advantage over any other competitors who wish to move ahead on DRI plants.

Regarding the suspension on natural gas, Ferriola said the wells provided a modest profitable return in 2013 but it not “a wise decision to invest more dollars in drilling for modest returns.” By mid-2014 there will be 300 producing wells. The drilling pause demonstrates the flexibility of our partnership to be able to adapt to natural gas conditions,” he said.

Regarding the use of aluminum in automobiles, Ferriola said he believes steel will continue to be the material of choice for automobile production. Aluminum, he said, is 2-3 times the cost of steel, it is expensive to re-tool manufacturing facilities and repair costs for consumers will be higher. Advanced high strength steel can result in light weighting similar to aluminum and as effectively. Nucor’s qualification for AHSS applications is going well, especially for cold-rolled and galvanized and the company expects imminent contracts.

Ferriola agreed with the statement that the shale gas revolution will result in a renaissance for manufacturing. Large producers such as Caterpillar are moving production back into the United States. Ferriola says Nucor has made the right investments,“We believe it’s coming, we believe we’ll be ready for it and be in the best position to take advantage of it.

Executive Vice President Joe Stratman, responding to a question about construction, said Nucor ended the year with stronger backlogs in the structural business than it has seen in quite awhile. There is a good balance between geography and sector which is a good sign for construction activity improvement.