The Week That Was: Record Q2 Profits All Around

So let’s do the numbers on the week that was:

Cleveland-Cliffs

Net income of $795 million. The best quarterly results in the company’s history.

Where is that money going?

To “monumental debt reduction” in the second half of this year and toward “net zero” debt in 2022, Cliffs Chairman, President and CEO Lourenco Goncalves said.

And then? The U.S. needs more investment in direct-reduced iron to feed its electric arc furnaces, but “don’t count on Cleveland-Cliffs for that” because its acquisitions of ArcelorMittal USA and AK Steel mean it has plenty of virgin iron units to meet internal demand.

Quote of the call: “One thing that should not be holding up anything any longer is COVID-19. Brilliant scientists have developed not one but several truly ground-breaking vaccines that would stop the virus in its tracks and any current variants. But we need enough people taking the vaccines,” Goncalves said.

Steel Dynamics Inc. (SDI)

Profits of $712.2 million, a new quarterly record.

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Where is that money going? On the operations side, not to another greenfield mill on the scale of the $1.9-billion greenfield EAF mill being built in Sinton, Texas. SDI already has a lot on its plate with four new coating lines – two in the Midwest and two in the South – in the works, too.

There is a “strong pipeline” of deal books for both steel assets and downstream manufacturing operations. But some M&A valuations might be at “ludicrous numbers,” SDI President and CEO Mark Millett said.

Quote of the call: “We remain incredibly bullish on the market for the rest of this year and into next year. On the demand side, it’s just incredibly strong,” Millett said.

Nucor

Second-quarter profits weighed in at $1.51 billion – or about equal to the combined record profits of Cliffs and SDI.

Where is all that money going?

Nucor has been on a bit of a buying spree lately, especially when it comes to downstream assets. There was the $370-million acquisition of Hannibal Industries shortly before earnings were announced. And prior to that there was the $1-billion acquisition of Cornerstone Building Brand’s insulated metal panels (IMP) business. And the largest U.S. steelmaker is also building a $1.35-billion plate mill in Kentucky.

What do these things have in common? Renewables and digital. The plate mill will make steel that could be used to build offshore windfarms, a growth market if an infrastructure bill passes. And those downstream acquisitions can supply warehouses used for e-commerce. Especially warehouses that need to be kept at certain temperatures – think grocery deliveries or server farms.

Steel is a cyclical industry. But digital and renewables are “truly growing,” Nucor President and CEO Leon Topalian said.

Quote of the call: “You’re going to see Nucor continue to look within … traditional steel-making lanes that we’ve operated in for the last half of century, but also expanding beyond,” Topalian said.

What are we keeping an eye on for next week?

U.S. Steel

The Pittsburgh-based steelmaker releases earnings on Thursday after markets close. And the call is on Friday morning. We’re not in the forecasting business. But we think it’s safe to say that a rising tide lifts all boats.

The acquisition of Big River Steel is looking pretty sharp these days, notably when it comes to automotive business. Are there any additional plays on the green steel side of things? (We should note that U.S. Steel is already exploring quite a lot on the decarbonization front.)

Also, what about a restart of Granite City Works? With scrap markets tight – and EAFs needing more virgin iron units – could a case be made for restarting the “A” furnace to make pig iron? And let’s not forget traditional energy markets. Oil prices seem to have established themselves solidly above $70 per barrel. Granite City, located just outside of St. Louis, supplies a lot of flat-rolled substrate to energy. Think welded oil country tubular goods (OCTG) and line pipe.

Why do we bring this up now? The “A” furnace has been idled since April 2020, following the initial outbreak of the COVID-19 pandemic in the U.S., according to SMU’s blast furnaces status table. Most markets have seen a significant rebound in demand since. Energy is one of the few that is still in the early stages of recovery. And if oil prices follow the trajectory of steel prices….

We asked U.S. Steel for comment on Granite City. The response: “We do not comment on speculation.”

Fair enough. And we appreciate the reply. (But that won’t stop us from speculating.)

By Michael Cowden, Michael@SteelMarketUpdate.com