Ferriola: “2018 a Record Year” for Nucor

Consolidated net earnings declined slightly from the third to fourth quarter, at $646.8 million compared to $676.7 million, but it was the strongest fourth-quarter performance for the company in its history. Net sales for the quarter decreased 7 percent to $6.3 billion, while shipments fell 5 percent from the third quarter to 6,687,000 tons. Average sales price per ton declined 2 percent compared to the previous quarter.

Nucor blamed seasonality for part of its lowered results from the third to fourth quarter. Besides lower shipments and steel prices, the steel products segment also saw a decline in the tubular products group and rebar fabrication.

The price of the average scrap and scrap substitute declined in the fourth quarter to $359 per gross ton and averaged $361 per ton for the full year. The raw materials segment recorded lower profitability due to falling prices. Nucor believes the scrap market is at the bottom and will improve going forward. Raw material prices are expected to be flat in 2019. There is no expectation that electrode, natural gas or other raw material costs will inflate in 2019, said CFO James Frias. Iron ore is an open question due to the mining disaster in Brazil and the unknown impact of that incident on iron ore supply and pricing.

Nucor’s overall steel mill operating rate in the fourth quarter was 88 percent, down from 92 percent in Q3. The average steel operating rate for the full year was 92 percent, up from 86 percent in 2017.

Nucor expects 2019 to be another strong year for the company. Out of 24 markets the company follows, all but power generation are steady or increasing. Demand in Nucor’s downstream business is strong with improved backlogs. Margins are expected to expand with steel prices coming down slightly. Rebar fabrication in the U.S. has been challenged for the last 12 to 15 months, but improvement is expected in the second half of the year.

Lead times for hot band are currently 3-4 weeks, and 5-6 weeks for cold rolled and galvanized.

Nucor expects its 1.2-million-ton plate mill planned for the Midwest to be operational in 2022. The company will be posting status updates on the Nucor website.

During the earnings conference call, Ferriola said he is not concerned about the new capacity coming on line in the U.S. “When you look at what’s come online today, particularly in the sheet markets, you are looking at about 2.5 million tons of new capacity. Imports are down about 1 million tons,” he said. “So you have a net of about 1.5 million tons in a market that’s 60 million tons overall, the whole sheet market. So it’s not that great of a change.”

“At the end of the day, the most cost competitive most efficient, best operating company will be the one that does the best,” he added.

Inventories are high right now, but are expected to normalize soon. Demand is strong and Nucor is expecting growth of 1.5 to 2 percent for steel sheet this year.

Ferriola noted the $40 price increase that Nucor just announced. “We would not announce a price increase unless we were confident we can get it,” he said.