Steel Mills

Nucor Says World Ready to take Action on China Steel Overcapacity

April 21, 2016

Nucor announced first quarter 2016 consolidated net earnings within its projected range. Net income was $70.8 million and consolidated net sales were $3.72 billion, a 7 percent increase from Q4. Average sales price per ton decreased 11 percent from Q4, total shipments to outside customers was 5,148,000 tons.

Nucor steel mills produced 5,390,000 tons of steel in first quarter. Steel mill shipments were up 27 percent from Q4 at 5,647,000 tons. Operating rates at Nucor steel mills during the quarter increased to 74 percent from 63 percent the prior quarter.

“First quarter performance benefited from a lower average cost of inventory at the beginning of the quarter and improved market conditions,” said Nucor in their earnings report. “Positive market factors included a small decline in import volumes and more balanced inventory levels at service center customers. Energy, heavy equipment and agricultural markets remain weak. The automotive markets remain strong.”

Raw materials segment showed improvement in the quarter due to improved performance at the scrap processing businesses. Nucor Steel Louisiana completed planned maintenance in Q4 2015 and did not resume production until late January due to market conditions. DRI profitability was hurt by low pricing for alternative raw materials.

Earnings are expected to be significantly improved in second quarter as announced price increases are accepted by the market. Performance of the steel mill segment is anticipated to be somewhat offset by higher scrap prices. The raw materials segment is expected to improve due to improved pricing at scrap processing and DRI facilities.

During the conference call Nucor advised that operating rates are improving. Sheet mills are now operating at 81-82 percent capacity.

Global steel overcapacity due to trade distorting practices is still the most pressing issue of the steel industry. Chairman and CEO John Ferriola noted that China is not the only country subsidizing steel mills and that the practice has led to dumping of steel products into the market. Nucor is optimistic about the final determinations for the ongoing sheet cases and recently filed plate case.

On the issue of market economy status for China, Ferriola said, “Over the past 15 years China has failed to implement the reforms necessary to become a market economy.” He added, “The U.S. has no reason to change its treatment of China as a nonmarket economy.”

During the earnings call Ferriola said the Nucor team returned from the OECD meetings in Brussels and reported a growing level of frustration around the world concerning overcapacity and a widely held belief that it is a problem that must be addressed. When asked if he thought China’s capacity reduction promises were credible, Ferriola noted the old saying, “Seeing is believing.” China’s comment that the only reason there is overcapacity is because of the global turndown and resulting weakened demand is a “ridiculous statement,” said Ferriola. He warned that whether or not China does what it says, “the rest of the world is ready to take action.”