Nucor Probably Glad to be Done With 2011
Although 2010 was by no means a disaster for Nucor, the last half of the year was a tough operating environment as the company was squeezed by so-so pricing and higher costs. For the fourth quarter total revenue dropped 7% though external shipments climbed about 15% and realized prices climbed about 14%. Scrap costs were also considerably higher in the quarter, though, climbing about 30% from last year.
Talking about the quarter and its outlook, management did point to signs of improvement in demand as well as a solid pricing environment. Though not specific to Nucor, the increase in hot-rolled prices since November lows has roughly doubled the increase in scrap costs, so that is clearly moving in the right direction for Nucor. Moreover, the company is moving ahead with a direct reduced iron plant in Louisiana - a plant that will help the company's cost structure over time, as direct reduced iron is an important ingredient in improving the quality of steel produced by mini-mills. (For more, see Steel Cycle Looks Good.)
The Look Around
As mentioned, Nucor's results were directionally in line with the rest of the U.S. steel sector for the fourth quarter. Steel Dynamics reported that shipments and pricing were soft on a sequential basis (that is, comparing the fourth quarter of 2010 to the third quarter), while up by a low-teens rate on a year-over-year comparison. Steel Dynamics also pointed to a revival in demand and a firm pricing outlook for 2011. Investors should keep in mind that both Nucor and Steel Dynamics are relatively leveraged to construction - a market that has yet shown only the barest signs of recovery. (For more, see Is Now The Time To Invest In Steel?)
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