Nucor Sets New Profit Record in the First Quarter

Total steel shipments for the quarter were up 13% from Q4 with shipments to outside customers up 11% to 7,176,000 tons. Shipments to internal customers represented 21% of total steel shipments. Downstream steel product shipments to outside customers increased 4% in the first quarter.

Citing a few key metrics, average scrap and scrap substitute cost per gross ton jumped 33% to $405 in Q1 and was up 38% compared to a year ago. The average steel price increased 21% per ton from Q4 and 25% from Q1 2020. Mill utilization rates rose to over 95% from 85% in the fourth quarter.

The company is seeing nonresidential construction strength expanding beyond warehouse, data center and cold storage sectors. Fabricator customers report robust demand and inquiries. Backlogs are strong across all steel segments. About 46% of Nucor products are used in the construction industry.

The infrastructure plan proposed by the Biden administration will provide additional construction as will the goal of deploying 30,000 megawatts of offshore wind power by 2030. Nucor estimates that wind power construction will require an estimated 8 million tons of steel, beginning in 2022 and spread over the next several years.

Nucor has invested in a number of projects that have finished or are near completion. The new Brandenburg, Ky., plate mill is slated for start-up in late 2022 and is ideally suited to serve the offshore wind market with a steel width capability of up to 14 feet and an outstanding grade range. “[The plate mill in Brandenburg] will be one of only a few mills in the world reliably supplying plate suited to offshore wind applications and expectations,” said Topalian. The mill is expected to have a strong production year in 2023 and approach 75-80% of nameplate capacity by the end of that year.

The modernization and capacity expansion at Nucor Steel Gallatin in Kentucky is on track to produce steel by the end of the year and is expected to achieve 1 million tons of incremental output in 2022, reaching full capacity of 1.4 million tons in 2023. Operations at the Gallatin mill will be shut down for three weeks during the fourth quarter to prepare for commissioning.

The new tube mill slated for Gallatin in 2023 will target the solar industry as part of its product reach into the construction sector. The mill will produce approximately 250,000 tons of hollow structural section (HSS) steel tubing, mechanical steel tubing and galvanized solar torque tube. The new hot band galvanizing line production rate at Gallatin was at 115 percent of its designed capacity in the first quarter, noted CFO Jim Frias.

Nucor’s Sedalia, Mo., rebar mill completed its first year of production in February and its spooled rebar product is achieving commercial success. Nucor’s second rebar micromill in Frostproof, Fla., began production in December and was profitable in March.

The Kankakee, Ill., merchant bar rolling mill was commissioned in January, completed trials in February and was cash positive in March. The mill is receiving further upgrades to the melt shop, which will be completed later this year.

The new Gen3 galvanizing line at Nucor Steel Arkansas will start up in the third quarter of this year. Additionally, Nucor’s joint venture with JFE Steel in Mexico was commissioned last fall and is currently trialing and qualifying products with auto customers, as well as shipping products out for alternative end-use applications.

On the issue of scrap and scrap substitutes, Frias said Nucor has built-in flexibility and regularly changes feedstock depending on costs. Chief Operating Officer David Sumoski noted that depending on the product mix, less prime scrap can be used in steelmaking. “On the bar side, we can go with zero prime…. On the sheet side, we can vary that depending, but you probably need to still be in the 30% range.” 

“We saw tightness (in scrap) coming and that is why we built DRI plants,” said Frias. Nucor operates two DRI plants and has no plans to build more at this time. Producing more DRI would keep scrap prices depressed, benefitting Nucor’s competitors. “If the price for prime scrap is tight and we get an advantage that we can capture with profits at the direct plant, then we have a competitive advantage against other minimills that make sheet steel,” he said.

DRI production will be impacted somewhat this year by planned maintenance outages in May and in December.

Frias disagrees with the premise that because of tight scrap supply EAF producers will become the new high-cost producers. “Look at our profits, let’s see what profits get published by integrated mills, and then ask me if you really think we have a cost disadvantage against integrated,” he stated.

Nucor plans to reveal a long-range sustainability plan that will include transparency on CO2 emissions in the coming months. Nucor has always been green, because it is the right thing to do, said Topalian. “One of the things we’ve not done as good a job on is actually telling that story much more proactively.”

Looking forward to the second quarter, Nucor expects to surpass first-quarter earnings due to improving pricing and margins in the steel mills segments as well as another strong performance in the steel products segment. Rising input costs will reduce second-quarter profitability in the raw materials segment.

“We expect earnings for the second quarter of 2021 to exceed our first-quarter results, setting a new record for quarterly earnings. Most of the end-use markets we serve remain strong and inventories remain lean across supply chains. We believe the current favorable demand environment will continue through the rest of 2021,” said Topalian.

By Sandy Williams, Sandy@SteelMarketUpdate.com